The Unconventional Monetary Policy: A Theoretical Approach

Abstract

The financial crisis that erupted on August 2007, hampered the financial markets. Furthermore; with the fall of Lehman Brothers in September 2008, financial crisis evolved into a full-fledged global crisis and depressed the real economy. Central Banks have responded by altering interest rateconventional monetary policyinitially. But this was not enough to calm the financial markets down and revive the real economy. In this regard, major Central BanksFED, ECB, BOE and BOJhave begun to use liquidity support, asset purchases and forward guidance, namely unconventional monetary policies. They have expanded their balance sheets accordingly in order to relieve financial market stress and to revive the real economy. In this study, we explore the theoretical background of these policies and assess their effectiveness.