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RISKS ASSOCIATED WITH THE UNCONVENTIONAL MONETARY POLICY OF THE LEADING CENTRAL BANKS
Abstract
In the current global recession, the worlds leading central banks face strong and sustained deflationary pressures. As a response to the global financial crisis the leading central banks undertake a wide range of unconventional monetary policy measures. Central banks introduce unconventional measures unprecedented in their scope and magnitude. The subject of the current research is the unconventional monetary policy of the leading central banks in the world the European Central Bank (ECB), the US Federal Reserve (Fed), the Bank of England (BoE) and the Bank of Japan (BoJ). By using unconventional monetary measures, central banks are aiming to revive specific market segments, whose normal functioning is disturbed during the global financial crisis, and to strengthen bank lending, which is a major transmission channel for monetary impulses in the economy. Also, unconventional monetary policy is aimed at facilitating financial conditions as a whole, mainly by purchasing assets, in particular liquid sovereign debt in large volumes, and lowering key interest rates, including by placing deposit rates at a negative territory. The current study demonstrates that in the developed countries, the unconventional central bank monetary policy measures have been successful in overcoming acute economic, financial and market turmoil. No collapse of the financial system or bank failures. However, the unconventional monetary policy is not only related to positive effects but also to substantial risks that this study aims to reveal. The key objective of the paper is to identify and explore the major risks that the unconventional monetary policy may pose for the economies. In the study, those risks are grouped into three groups, namely: (a) risk to financial stability; (b) risk of confidence in the central banks; (c) unconventional monetary policy is not a solution to structural economic problems. Those issues are also related with the way in which the central banks will end the unconventional course of monetary policy. The research methodology covers theoretical and methodological study, descriptive analysis, comparative study and critical analysis.
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