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Claudio Borio and Piti Disyatat -- 'Helicopter money': Reality bites

Since the Great Financial Crisis, central banks in the major economies have adopted a whole range of new measures to influence monetary and financial conditions. The measures have gone far beyond the typical pre-crisis mode of operation -- controlling a short-term policy rate and moving it within a positive range -- and have therefore come to be known as "unconventional monetary policies." To be sure, some of these measures had already been pioneered by the Bank of Japan roughly a decade earlier in the wake of that country's banking crisis and uncomfortably low inflation. But no one had anticipated that they would spread to the rest of the world so quickly and become so daring, testing the boundaries of the unthinkable.

As growth has remained disappointing and inflation stubbornly below targets, the range and size of these measures have increased. Hence the growing use of long-term liquidity support, large-scale asset purchases, sizable increases in bank reserves (so-called QE) and, of late, even the introduction of negative policy rates. In the wake of these measures, the central banks' monetary base (cash and bank reserves) has ballooned in step with the overall size of their balance sheets (see graph).

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