A banking system in which individual banks hold reserve assets equal to a fraction of deposit liabilities. For further details see: THE FINANCIAL SYSTEM AND THE ECONOMY: Principles of Money and Banking.
|Profit Equalisation Reserve|
In the financial crisis, conventional monetary policy was restricted by the zero lower bound on nominal interest rates, which meant that monetary policy makers had to turn to unconventional policies to stimulate demand and prop up inflation expectations. The main policy used was quantitative easing (often referred to as QE). When the policy interest rate is as low as it can be, central banks use asset purchases to try to boost asset prices and lower yields. QE is described as unconventional because the policy lever it uses is different to that used in modern inflation-targeting monetary regimes, which adjust short-term interest rates to influence aggregate demand. For further details see: MACROECONOMICS: Institutions, Instability, and the Financial.