Sterilized purchases of private sector assets can be effected either by selling existing assets on the central bank's balance sheet – essentially swapping "good" assets for "bad" – or by creating additional central bank reserves and then sterilizing, or mopping up, the extra reserves by selling new government securities.2 Credit easing can also be combined with quantitative easing, in which case the purchase of private assets will remain unsterilized and the reserve base will expand.
Four guiding principles Although the three unconventional monetary policy instruments I have just described have been studied extensively, real-world experience with them in recent times is limited. Any decision to use them necessarily involves some risk and uncertainty. To deal with these challenges, the Bank of Canada has identified four key principles that would guide its actions whenever these unconventional measures are employed.