The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
The large recession that followed the Global Financial Crisis of 2008-09 triggered unprecedented
monetary policy easing around the world. Most central banks in advanced economies deployed
new instruments to affect credit conditions and to provide liquidity at a large scale after shortterm
policy rates reached their effective lower bound. In this paper, we study if this new set of
tools, commonly labeled as unconventional monetary policies (UMP), should still be used when
economic conditions and interest rates normalize. In particular, we study the optimality of asset
purchase programs by using an estimated non-linear DSGE model with a banking sector and
long-term private and public debt for the United States. We find that the benefits of using such
UMP in normal times are substantial, equivalent to 1.45 percent of consumption. However, the
benefits from using UMP are shock-dependent and mostly arise when the economy is hit by
financial shocks. When more traditional business cycle shocks (such as supply and demand
shocks) hit the economy, the benefits of using UMP are negligible or zero.