As they make these decisions, policymakers will need to consider the distortions caused by prolonged conditions of monetary ease. After all, sustained low interest rates have been identified by many as an important factor that contributed to the crisis (see BIS, 79th Annual Report, Chapter I). At the same time, policymakers should also closely monitor the distortions arising from unconventional monetary policy tools. These include price distortions in bond markets that can result from changes in central banks’ criteria for eligible repo collateral and from their asset purchases. Artificially high asset prices in certain markets might delay the necessary restructuring of private sector balance sheets. There are also.
