New Instruments of Monetary Policy: The Challenges

Cambridge Centre for International Macroeconomics and Finance and MMF

We are sponsoring a conference to consider recent and likely future developments in the design and use of tools of monetary policy and Spencer Dale, Chief Economist at the Bank of England, will provide the keynote address on "QE: One Year On".

The events of the last two years have provided a historically unprecedented challenge to the conduct of monetary (and fiscal policy). A policy framework based on a broad inflation targeting regime (including targets for output and employment) appeared to be very successful in reducing the volatility of inflation and output (the so-called Great Moderation). However, with the zero interest rate floor now being approached, the use of alternative or complementary instruments of policy has come to the fore. There is also a complementary debate on the ongoing need for further instruments of monetary policy to complement financial regulation.

The purpose of this one day workshop is to consider the theoretical and empirical basis for alternative instruments such as quantitative or credit easing. There is still considerable uncertainty about the precise mechanisms by which Q/CE functions and how Q/CE might work to alter output and inflation. It what way does credit easing differ from conventional open market operations? Is it the range of yields that it tries to influence? How do banks - still facing considerable counterparty risk within and outside of the banking sector - respond?

The conference will take place on 12th March 2010 at the Winstanley Lecture Theatre, Trinity College, Cambridge. It is envisaged that a volume of papers will be prepared as a result of this conference as part of a new Cambridge University Press series on Monetary Policy. 

Jagjit Chadha (jsc@kent.ac.uk)
Sean Holly (sh247@cam.ac.uk)