Unconventional monetary policies implemented by major central banks across the globe have been effective in containing economic and financial market crisis while reducing tail risks, the International Monetary Fund said in a report published Thursday.
The policies have been effective in substantially reducing tail risks, reducing deflationary pressures, raising growth prospects and restoring market functioning in the U.S., the U.K., Japan, and euro area, the IMF said in a discussion paper.
The paper examines the unconventional monetary policies (UMP) by US Federal Reserve, the European Central Bank, Bank of Japan and the Bank of England.
The analysis found that bond purchases had significantly lowered bond yields in the countries making the purchases. Other type of unconventional measures had decreased bank funding costs and lowered lending rates, at least in some countries, the Fund staff said in the report.
Most participants of the discussion agreed that bond purchases could have potential negative side effects in the longer run. These side effects include perception of debt monetization, delays to reforms, impaired market functioning and problems arising out of the banks' exit from easy monetary policy.
The report noted that the UMP may contribute to exchange rate depreciation and lead other countries to follow suit.
On the impact of UMPs on emerging market economies, the report said while capital flows to emerging economies are generally welcome, the size and composition of flows to some countries had fueled asset price bubbles and undermined financial stability.
Some of the participants opined that UMPs have placed undue burden on the monetary policies of emerging nations, the report noted.
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