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From Conventional to Unconventional Monetary Policies: The Consequences of the Market-Maker-of-Last-Resort

45 Pages Posted: 17 Oct 2015  

Gabriel A. Giménez Roche

École Supérieure de Commerce (ESC) de Troyes; Sciences Po

Nathalie Janson

Groupe ESC Rouen

Date Written: October 15, 2015

Abstract

The increasing importance of commercial banks’ noninterest-earning activities rendered conventional monetary policy relatively obsolete in the contemporary economy. It has been a long time since commercial banking was limited to bank lending activities. Indeed, it is now present in practically all segments of the financial markets. Although this opened new outlets to improve performance, it also exposed commercial banking to greater volatility. In order to meet their stability goals, central banks around the world have now to intervene in all those markets where commercial banking has extended its activities. This effectively changed central banking from having a lender-of-last-resort role to that of a market-maker-of-last-resort. This paper provides a survey of contemporary practices in central banking, and exposes the consequences of so-called unconventional monetary policy to the world economy. The main point here is that the emergence of the market-maker-of-last-resort role actually makes the economy weaker instead of strengthening it.

Keywords: monetary policy, qualitative easing, quantitative easing, unconventional policies

JEL Classification: B53, E43, E44, E51, E52, E58

Suggested Citation

Giménez Roche, Gabriel A. and Janson, Nathalie, From Conventional to Unconventional Monetary Policies: The Consequences of the Market-Maker-of-Last-Resort (October 15, 2015). Available at SSRN: https://ssrn.com/abstract=2674781

Gabriel Giménez Roche (Contact Author)

École Supérieure de Commerce (ESC) de Troyes ( email )

217 Avenue Pierre BROSSOLETTE
Troyes, 10002
France

Sciences Po ( email )

27 rue Saint-Guillaume
Paris Cedex 07, 75337
France

Nathalie Janson

Groupe ESC Rouen ( email )

1, rue du Maréchal Juin - BP 188
Mont Saint Aignan Cedex, Normandy 76825
France
33-232825771 (Phone)

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