Monetary policy space

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Central banks - monetary policy - interest rates - unconventional monetary policy.

Monetary policy space is the degree of flexibility that central banks have in applying monetary policy, especially in the context of very low interest rates.


The economic impacts of Covid-19 to date: risk management
" In arguing that risk management considerations become increasingly important when monetary policy space is limited, Evans et al. defined monetary policy space in terms of scope to cut interest rates to the effective lower bound (ELB) ...
I am referring to monetary policy space in terms of the MPC’s current toolkit, namely the scope for rate cuts to the effective lower bound, purchases of government and high grade corporate debt, and forward guidance.
Policy space is limited because, unless term premia become substantially negative, asset purchases probably could not push longer term rates much below the effective lower bound for the policy rate.
The MPC could still expand [quantitative easing] or reintroduce forward guidance even if the entire yield curve is at or below the ELB.
But the effectiveness of such measures may be less – and surely is less certain – under those conditions."
Michael Saunders, External Member of the Bank of England's Monetary Policy Committee (MPC), May 2020.


See also