The Full Toolkit: How Central Banks Influence the Economy
By Allen Krewzz
Why Central Banks Need More Than One Tool
The Policy Interest Rate: The Anchor
Open Market Operations: The Everyday Mechanism
Reserve Requirements: A Direct Lever on Lending
Quantitative Easing: The Unconventional Option
Comparing the Full Toolkit
Forward Guidance: The Tool That Is Not a Transaction
Forward guidance works because markets are forward-looking. A credible statement about future intentions can move long-term rates today, without a single security changing hands.