Balance Sheet Policies in an Evolving Economy: Some Modelling Advances and Illustrative Simulations

Once considered "unconventional," balance sheet policies have become an integral part of the toolkit of many central banks. Increased reliance on balance sheet policies reflects in part a decline in the neutral level of interest rates, which limits central banks' ability to cut their policy rates to support the economy during downturns, and many observers expect that neutral level to remain low relative to its historical average in the coming decades.