The Great Recession prompted central banks to adopt non-standard policies like quantitative easing and zero interest rates. The effectiveness of these tools in stimulating private credit expansion and economic growth is increasingly being questioned. Since more and more central bankers declare that the natural interest rate is lower than previously thought, some economists and policymakers argue that monetary policy should be even more unconventional. For example, according to San Francisco Fed President John Williams, a lower natural rate implies that “conventional monetary policy has less room to stimulate the economy during an economic downturn”.

In this edition of the Market Overview we will discuss which tools affecting inflation and real activity do the central banks have left. We will examine thoroughly the most debated innovative instruments, such as helicopter money, and consider how these ‘non-standard unconventional’ tools affect the economy and the gold market. It is quite unlikely that they will be introduced in the U.S. right now, but they may be only one recession away from us. This is why we decided to analyze them – quantitative easing was only an academic curiosity, once. We will also analyze recent propositions to change current monetary policy framework by increasing the inflation target or by replacing it by price level or nominal GDP targeting. Last but not least, we will address briefly the policy of targeting the long-term interest rates, introduced last month by the Bank of Japan. Investors should not ignore the change of its monetary policy framework as history teaches us that many of the unconventional tools adopted by the BoJ have been later adopter by other central banks, including the Fed. How would these proposals, if implemented in the U.S., influence the precious metals market? What's the true link between unconventional monetary policy and gold?