Theory, effect and implications of unconventional monetary policies

BA Shusong1,2 ZENG Zhi3 WANG Changyao4

(1.Chief economist of China Banking Association)
(2.Chief Chinese economist of Hong Kong Exchanges)
(3.Doctoral candidate, at The School of Finance, Renmin University of China)
(4.Master degree candidate, at The School of Finance, Zhongnan University of Economics and Law)

【Abstract】Forward guidance, quantitative easing, negative interest rate, structural monetary policy in China and other non-traditional monetary policies have expanded the theoretical boundaries of monetary policy. Monetary policy can not only increase total demand and reduce systemic financial risks, but also solve the structural macroeconomic problems. This article makes a systematic analysis of unconventional monetary policies from three perspectives: theoretical basis, classification of tools and transmission channels. On the basis of the analysis, it adopts the event study method to evaluate the effect of such policies by European Central Bank and People’s Bank of China and finds that non-traditional monetary policies can significantly reduce the interest rate of the money and bond markets to ensure financial stability. With the continual use of the tool, the effect diminishes, and in China, structural monetary policy tools are significantly stronger than others. Finally, this article provides advices on improving China’s structural monetary policy from the perspectives of drawbacks of the tool, emphasis on market mechanism, spillover and exit risks, market mechanism and tool innovation.

【Keywords】 negative interest rate; quantitative easing; structural policy; unconventional monetary policy; financial stability;


【Funds】 Major Research Program of Key Research Base of Humanity and Social Science by the Ministry of Education of China (11JJD790009) Project of 2016 Top Talents Cultivation Planning Project of Renmin University of China

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(Translated by LIU Yuhui)


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This Article


CN: 11-3799/F

Vol , No. 02, Pages 146-161+8

March 2018


Article Outline


  • 1 Theoretical studies of the unconventional monetary policy
  • 2 The four major tools of the unconventional monetary policy
  • 3 The transmission mechanism of unconventional monetary policy
  • 4 Effectiveness evaluation of the unconventional monetary policy: cases of China and Europe
  • 5 The enlightenment to China
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