In more normal times, when short-term policy rates are not constrained, I expect that balance sheet policies will be rarely used. By contrast, forward guidance and other forms of communication about policy can be valuable even when the zero lower bound is not relevant, and I expect to see increasing use of such tools in the future.
Financial stability policy Even as central banks were innovative in the operation of their monetary policies, they were forced to be equally innovative in restoring and maintaining financial stability. Serving as a lender of last resort – standing ready in a crisis to lend to solvent but illiquid financial institutions that have adequate collateral – is, of course, a traditional function of central banks.