Unconventional Monetary Policy: The Israeli Experience

Monetary policy in Israel during the global crisis used unconventional measures alongside aggressive cuts in the interest rate. The measures included the purchase of foreign currency, the purchase of government bonds in the secondary market, and additional measures. As the economy began to recover, the Bank of Israel gradually reduced the scale of monetary expansion, rolling back the unconventional measures first. However, foreign currency purchases have continued in various schemes up to date, reflecting the importance of exports to the economy and the enduring challenge posed by an appreciated currency. Several lessons arise regarding unconventional measures: they should be considered an integral part of monetary policy at a near-zero interest rate; they enhance the intensity of the monetary policy response, which is crucial at a time of crisis when the risks of underreacting are acute; the variety of these measures allows the pursuit of several goals apart from monetary expansion.