), “ the effects of unconventional and conventional u. s. monetary policy on the dollar ( pdf ), ” working paper series 2013 – 11 ( san francisco : federal reserve bank of san francisco, may ). bis central bankers ’ speeches financial markets, and in these circumstances it had significant positive international spillovers. the boost to domestic demand likely outweighed any effect via the exchange rate and contributed to an easing of u. s. and global financial conditions. those positive spillovers were reinforced by widespread easing of conventional monetary policies by central banks across the globe in response to the depressed state of their economies. in contrast, in 2010 and 2011, when the federal reserve undertook its second round of large - scale asset purchases, the global reaction was mixed. by that time, several emerging market economies were experiencing economic conditions close to full employment and strong credit growth. for many of the countries with divergent economic conditions, the combination of a market - based exchange rate and a firmly anchored monetary policy framework oriented around domestic objectives was sufficient to offset spillovers. others, however, saw the increased capital inflows associated with the divergence of conditions as presenting problems for the management of their own economies. one country in this category was china, which was experiencing an investment - led expansion accompanied by credit expansion. separately, several emerging market economies with relatively flexible exchange rates, particularly those experiencing expansions because of strong commodity prices, saw risks from the combination of capital inflows and upward pressure on exchange rates. elevated inflows of foreign capital can present challenges in circumstances where prudential oversight and control of financial markets are not fully developed. thus, countries such as brazil worried that heavy capital inflows could lead to an undesirable loosening of credit conditions and leave the economy vulnerable to rapid reversals. in the past two years, we have seen these concerns play out in reverse. during the “ taper tantrum ” in 2013 and again in recent months, an increase in expectations of policy divergence in the united states confronted economic policymakers in emerging markets with capital outflows and financial tightening against a backdrop of weakening economic growth and financial imbalances. for these economies, while exchange rate depreciation can help offset weaker demand for exports and tighter financial conditions, it also puts upward pressure on inflation and may create problems for corporations with considerable foreigncurrency denominated debt. in the case of china, a previously set course of tying the renminbi to the u

lael brainard : unconventional monetary policy and cross - border spillovers speech by ms lael brainard, member of the board of governors of the federal reserve system, at the 16th international monetary fund jacques polak research conference “ unconventional monetary and exchange rate policies ”, washington dc, 6 november 2015. * * * among students of central banking, the great recession will be remembered in part for the monetary policy innovation it prompted. since 2008, we have seen several episodes of extreme financial conditions in major economies. in many countries, monetary policy has shouldered a large share of the policy response. debt - deleveraging dynamics and disinflationary pressures have confronted policymakers in several economies with the classic challenge of providing accommodation when constrained by the zero lower bound. in contrast to the great depression, a number of central banks have found the “ courage to act, ” which has led to important policy innovation. while it will take many years for rigorous research to distill the lessons from this period, i will offer a few preliminary observations. 1 the effectiveness of unconventional monetary policy for much of the period since 2008, many economies, including the united states, the united kingdom, switzerland, the euro area, and japan, have been at or near the zero lower bound. many economies have experienced depressed aggregate demand and large and persistent gaps between output and potential, which have led to significant reductions in the level of policy rates in order to achieve full employment and target inflation. moreover, the neutral level of short - term risk - free rates looks to be much lower now in many countries than it had been previously. a lower neutral rate raises the likelihood that the requisite monetary accommodation when using conventional tools alone implies setting the nominal policy rate below zero. with constraints on moving nominal interest rates significantly below zero, central banks have looked to unconventional policy, such as asset purchases. the evidence suggests that unconventional monetary policy can be effective at overcoming the limitations on policy at the zero lower bound by operating through channels broadly similar to conventional monetary policy. a number of studies have suggested that the forward guidance and large - scale asset purchases conducted by the federal reserve boosted the levels of employment and inflation at a time when the level of short - term interest rates was constrained by the zero lower bound. for example, engen, laubach, and reifschneider estimate that the federal reserve ’ s forward guidance and asset purchase programs may have lowered the unemployment rate by as much as 1 – 1 / 4 percentage points and increased