Economics Monetary Policy Questions
Conventional monetary policy refers to the standard tools and measures used by central banks to manage the money supply and influence interest rates in order to stabilize the economy. This typically includes actions such as adjusting the benchmark interest rate, conducting open market operations, and setting reserve requirements for banks.
On the other hand, unconventional monetary policy refers to non-traditional measures implemented by central banks when conventional tools are no longer effective or when the economy faces severe challenges. These measures may include quantitative easing (QE), where central banks purchase government bonds or other assets to inject liquidity into the economy, forward guidance, which involves providing explicit guidance on future interest rate policies, and negative interest rates, where banks are charged for holding excess reserves.
Overall, the main difference between conventional and unconventional monetary policy lies in the tools and measures used, with unconventional policies being more innovative and unconventional in nature.