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Financial (in)stability, low interest rates and (un)conventional monetary policy: potential risks and policy measures

Gerba, Eddie and Macchiarelli, Corrado (2015) Financial (in)stability, low interest rates and (un)conventional monetary policy: potential risks and policy measures. IP/A/ECON/2015-01 (PE 542.189). European Parliament, Policy Department A: Economic and Scientific Policy, Brussels, Belgium.

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Abstract

Since the advent of the global financial crisis of 2007–08, major central banks in advanced economies - the US Fed, the Bank of England, the Bank of Japan and the ECB - have undertaken monetary policies with a view to keep interest rates low. They have also significantly expanded the monetary base (and their balance sheets) through the adoption of unconventional monetary policies, although at different times and in different forms. Several years of unconventional monetary policies and exceptionally low interest have improved banks’ health, eased credit conditions and, ultimately, helped supporting the economy. However, these policies may have undesirable side- effects that could put financial stability at risk the longer they are in place. Against this background, this paper discusses the main threats to financial stability potentially triggered by unconventional monetary policies, especially in an environment of low interest rates, analyse the interrelation between financial stability and monetary policy at the current juncture and briefly assess the viability of specific measures that could prove helpful to contain such risks, given the current institutional framework.

Item Type: Monograph (Report)
Official URL: http://www.europarl.europa.eu/
Additional Information: "This policy contribution was prepared on request of the ECON Committee of the European Parliament for the Monetary Dialogue with the President of the European Central Bank on 02/06/2016 (http://www.europarl.europa.eu/committees/en/econ/monetary-dialogue.html). Copyright remains with the European Parliament at all times". © 2015 European Parliament
Divisions: European Institute
Subjects: J Political Science > JN Political institutions (Europe)
Sets: Departments > European Institute
Date Deposited: 07 Dec 2016 12:51
Last Modified: 20 Feb 2019 02:05
URI: http://eprints.lse.ac.uk/id/eprint/68544

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