Therefore it is completely meaningless to talk about quantitative easing as being “unconventional” monetary policy. However, what is “unconventional” is when central bankers think that credit policy is monetary policy.
So when the ECB for example is intervening in the European sovereign bond market to distort the relative prices of for example Spanish and Germans government bond then that is credit policy. Particularly as the ECB consistently has said that any such operations will be “sterilized” – hence, the ECB will ensure that its operations have no impact on the money base. But again that is not “unconventional” monetary policy. It is not monetary policy at all – it is credit policy.
So Mr. Jean Pisani-Ferry, Commissioner-General for Policy Planning in Paris, would do well to read that post. He asks:
Can the ECB do more? Having acted boldly since the summer of 2012 to preserve the eurozone’s integrity, it has felt compelled not to antagonize policy hawks and to err on the side of caution in formulating its monetary strategy. This is an uncomfortable middle way.
Alternatively, the ECB could put political correctness aside and do more to fulfill its price-stability mandate by spelling out a strategy to return to normalcy, and by indicating an unambiguous readiness to adopt an explicit list of unconventional policies.
The point is that the ECB must be prepared to make that choice. As Bernanke can attest, conventional monetary policies may stop working sooner rather than later.
A new definition of “acting boldly” is urgently required!