Conventional
This interest rate is determined in the market for reserves and represents the cost of overnight loans of reserves from one bank to another.
What is the federal funds rate?
This situation arises when a central bank cannot lower its policy interest rate much below zero, forcing the use of alternative monetary tools.
What is the effective-lower-bound problem?
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These dynamic operations, considered the most important conventional tool, involve the purchase or sale of securities to change the level of reserves and the monetary base.
What are open market operations?
This nonconventional strategy involves an expansion of the central bank’s balance sheet through asset purchases, leading to a massive increase in liquidity, as seen during the Global Financial Crisis and the Coronavirus pandemic.
What is quantitative easing?
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Set at a higher penalty rate than primary credit, this facility lends to banks in financial trouble facing severe liquidity problems.
What is secondary credit (or the rate on secondary credit)?
Described by Ben Bernanke, this policy involves altering the composition of the central bank’s balance sheet to improve the functioning of specific credit markets, rather than solely increasing liquidity.
What is credit easing?
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Changes to this tool, which specifies the percentage of deposits banks must hold as required reserves, are rarely used by the Federal Reserve because banks find it costly to adjust to them.
What are reserve requirements?
This management of expectations involves the central bank communicating a commitment to keep the policy rate low for an extended period, intending to lower long-term interest rates.
What is forward guidance?
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This target rate is used by the European Central Bank (ECB) to signal its monetary policy stance and sets the target for the overnight cash rate.
What is the target financing rate?
This policy tool became essential during the Global Financial Crisis, encompassing facilities like the Term Auction Facility (TAF) and the Primary Dealer Credit Facility (PDCF).
What is liquidity provision?
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