Unconventional monetary policy
By Christopher Bowdler and Amar Radia
Central banks in advanced economies typically conduct monetary policy by varying short-term interest rates in order to influence the level of spending and inflation in the economy. One limitation of this conventional approach to monetary policy is the so called lower bound problem. If the central bank were to try to set short-term interest rates much below zero, then households and companies would choose to hold money in the form of currency instead of depositing it in banks.