corridor policy

Unwinding: a tale of corridors and floors

I discuss six tools available to monetary policy makers. Three of these have been used since the inception of central banking.Three are new and were introduced in the aftermath of the 2008 financial crisis. I argue that, when the UK Monetary Policy Committee raises the interest rate, it should maintain a large balance sheet that consists of both risky and safe assets.Further, the Bank should trade the risk composition of its balance sheet to promote the stability of asset prices.