When the unconventional becomes conventional

Claudio Borio, Head of the Bank for International Settlements' Monetary and Economic Department, gave a speech today about central banks' toolkits in normal and crisis times, acknowledging that there's not much difference these days. He summarizes lessons, caveats, and challenges. The speech focuses on monetary policy; there's a public debt angle too:

"This notion [the natural interest rate] is especially powerful when coupled with the view that the long-term side effects of unusually and persistently easy monetary policy are not significant or can be effectively managed through other policies. In some respects, this view about the significance of the side effects is not surprising. The costs of failing to rebuild buffers are not highly visible - either ex ante, as they materialize only in the longer term, or ex post, as it will be hard to attribute the costs (eg financial vulnerabilities, notably higher debt, public and private, as well as lower growth) to previous monetary policy decisions. But these vulnerabilities do weaken the economy's ability to withstand higher rates - a kind of "debt trap." In the case of public debt, this can give rise to challenges for the central bank's independence and credibility."