and the loss of confidence in the building blocks of the financial system, its impact was magnified through quick transmission to other economies as well. monetary authorities in the advanced economies were the first to resort to aggressive monetary easing first by reducing policy rates. however, key channels of conventional monetary policy were severely impaired during the crisis as policy rates in most advanced economies approached zero lower bound ( chart 1 ). bagehot walter ( 1873 ), lombard street : a description of the money market, king & co., london ; reprinted wiley, new york 1999. bis central bankers ’ speeches taking cognisance of the severity of the crisis and concerns of economic recession, central banks used their balance sheets in unconventional ways to augment liquidity ( table 1 ). the qe programmes initially attempted to alleviate financial market distress, but this purpose soon broadened to include achieving inflation targets, stimulating the real economy, and containing the european sovereign debt crisis ( fawley and neely, 2013 ) 2. now let us discuss a little about the rationale for unconventional policies undertaken across major economies. table 1 fawley, brett w. and christopher j. neely ( 2013 ), “ four stories of quantitative easing ”, federal reserve bank of st. louis review, january / february, vol. 95, no. 1. bis central bankers ’ speeches in the us, immediately after the collapse of lehman brothers, when slow growth and high unemployment emerged as major concerns, the fed announced the policy of quantitative easing ( qe ) in november 2008. the first two rounds of qes reactivated financial markets, but failed to spur growth. under “ operation twist ” instituted in september 2011, the fed took initiative of buying longer - term treasuries and simultaneously selling some of the shorterdated securities to bring down long - term interest rates which continued till december 2012. with a view to putting in place a stronger version qe, it launched qe3 in september 2012. under qe3, the fed started purchasing us $ 85 billion of fixed - income securities per month. the fed intended to keep qe3 in effect until unemployment falls to 6. 5 per cent or inflation rises to 2. 5 per cent. in addition to qe3, the fed gave a forward guidance that it would keep short - term rates low through 2015. as economic parameters showed improvement, the fed started talking about exit, popularly known as the tapering of bond buying in may 2013. subsequently, it announced to

, their policy responses became more synchronised with global efforts ( mohanty, 2011 ) 5. while both developed economies and emes resorted to conventional and unconventional monetary measures, there were certain differences in terms of their timing, types and magnitudes. first, while in the advanced economies the switchover was from conventional monetary tools to unconventional measures due to policy rates approaching zero, in many emes, unconventional foreign exchange easing and domestic liquidity augmenting measures mohanty, deepak ( 2011 ), “ lessons for monetary policy from the global financial crisis : an emerging market perspective ”, rbi bulletin, april. bis central bankers ’ speeches preceded the conventional measures of policy rate cuts. second, while central banks in emes relied mostly on direct instruments such as reserve requirements to ease domestic liquidity, central banks in advanced countries resorted to various liquidity providing operations through relaxation of counter - parties, collaterals and maturity. third, central banks in advanced countries extensively used credit and quantitative easing measures which led to large expansion of their balance sheets unlike in emes. fourth, while in advanced economies fiscal support aimed at rescuing the financial sector from the crisis situation, in emes they were generally meant to address the deficiency in aggregate demand. let me now turn to some of the consequences of unconventional policy. impact of unconventional policies as most of the unconventional monetary policy measures were undertaken keeping in view the domestic economies, the attendant increase in global liquidity appears to have impacted a range of asset classes in both advanced and emerging economies ( chart 5 ). there are studies which find significant impact of qe. they suggest reduction in us treasury yields around 100 basis points, corporate bond yields by 80 basis points, and reduction in the range of 20 – 80 basis points in other advanced economies6. in case of some emes, the evidence suggested high capital inflow pressure, rapid domestic credit growth and domestic inflationary pressures. chen, q., a. filardo, d. he and f. zhu ( 2012 ), “ international spillovers of central bank balance sheet policies ”, in bis papers no. 66. bis central bankers ’ speeches furthermore, indications about the possible withdrawal since the talk about us taper in may 2013 has caused volatility in financial markets in emes and impacted currency valuations as capital retreated back to the us in anticipation of higher interest rates. emes, particularly with large current account and fiscal deficits, were severely impacted. let me turn to our experience