‘Unconventional credit policy’ can help avoid lower bound – BIS paper

Liquidity injections can be useful tools but also face limits, authors find

The Bank for International Settlements, Basel
The Bank for International Settlements, Basel
Photo: Ulrich Roth

“Unconventional credit policy” such as liquidity injections can help an economy escape the zero lower bound, research published by the Bank for International Settlements finds.

However, authors Jorge Pozo and Youel Rojas find there are limits to its effectiveness. Once an economy hits the lower bound, credit policies are weakened.

In the working paper, they outline a simple two-period model. They say a key innovation is that they simulate frictions to both credit supply and demand, which

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