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.
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ClewsR., SalmonC. and WeekenO. (2010), ‘The Bank's Money Market Framework’, Bank of England Quarterly Bulletin, Q4, pp. 292–301.
4.
FarmerR.E.A. (2016), Prosperity for All: How to Prevent Financial Crises, Oxford: Oxford University Press.
KeisterT, MartinA. and McAndrewsJ. (2008), ‘Divorcing money from monetary policy’, Federal Reserve Bank of New York Economic Policy Review, September, pp. 41–56.
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WoodfordM. (2012), ‘Methods of policy accommodation at the interest-rate lower bound’, Federal Reserve Bank of Kansas City Jackson Hole Symposium Conference Volume, August, pp. 185–288.
