How unconventional monetary policy works Why is this the case? Conventional monetary policy operates by steering real money market rates below the prevailing equilibrium real rate, which in turn stimulates demand and inflation.
BIS central bankers’ speeches  3  But when the equilibrium rate is so low that the central bank cannot bring its policy rate sufficiently below it, the capacity to increase the degree of stimulus through moving short-term rates becomes limited. Unconventional tools can, however, still be effective in these conditions.