The Tax Research glossary seeks to explain the terms used on this blog that refer to more technical aspects of economics, accounting and tax. It recognises that understanding these terms is critical to understanding the economic issues that affect us all the time.

Like the rest of the Tax Research blog, this glossary is written by Richard Murphy unless there is a note to the contrary. It is normative approach and reflects post-Keynesian, heterodox economic opinion with a bias towards modern monetary theory. The fact that many items in that sentence are hyperlinked shows that they are explained in the glossary.

The copyright notices pertaining to the Tax Research blog apply to this glossary.

The glossary is designed to achieve three goals:

  • It seeks to provide a short, hopefully straightforward, definition of what a term might mean.
  • It then seeks, when appropriate, to explain what the term means within the context in which it is used. This is meant to elaborate the definition to add to understanding.
  • It then critiques the term, explaining, if appropriate, what the weaknesses inherent in the term or the situation it describes are. The aim here is to empower the reader to understand the issues behind the nonsense that most professions create around their activity to provide them with a mystique that they rarely deserve and which often hides what they are really up to.

The glossary is not complete. It will grow over time. If you think there are entries that need adding please let me know by emailing Please also feel free to suggest edits. The best way to do this is to copy an entry into Word and then send me a track-changed document indicating the changes that you suggest.

Because of the way in which it is coded this glossary automatically cross refers entries within itself and to the blog that it supports and within the glossary itself but if you think a link is missing please let me know.

Finally, if you like this glossary then you might like to buy me a coffee. It has required the support of a fair few to write it. You can do so here.

Glossary Entries

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Unconventional monetary policy

Unconventional monetary policy describes the actions of a central bank that tries to control the rate of inflation in the jurisdiction for which it is responsible in any way other than by conventional monetary policy, which involves it changing the base rate of interest that it pays to that jurisdiction's commercial banks on the deposits that they hold with the central bank on what are called their central bank reserve accounts.

Conventional monetary policy is used by the central bank of a jurisdiction when the bank base rate that they are able to set is significantly positive. Quite what significantly positive might mean is open to interpretation, but it is likely to mean that the rate in question is at last two per cent, meaning that the option to both increase and decrease it to a significant extent is available to the central bank in question.

If the base rate of interest in a jurisdiction approaches zero then base rate is said to be at the zero bound and unconventional monetary policy is likely to be used as an alternative to conventional monetary policy.

Types of unconventional monetary policy include:

  • Quantitative easing, where a central bank makes open market purchases of the previously issued debt of the government to whom it is accountable with the aim of reducing the effective interest rate payable on that debt with the intention of encouraging greater market investment in riskier assets which it is presumed will boost economic activity in the jurisdiction.
  • The provision by the central bank of new financing facilities to commercial banks, particularly for selected types of onward lending by those commercial banks. The UK Bank of England has used this option to promote commercial bank lending for domestic mortgages and for loans to small and medium-sized enterprises.
  • The use of what is called ‘forward guidance' that indicates what the central bank thinks that interest rate policy should be in the future with the aim of controlling market expectations.
  • The use of effective negative interest rates. In the UK this as particularly commonplace with the issue of index linked bonds.

Quantitative easing and the direct provision of loans by the central bank to commercial bank have the same net effect of increasing the quantity of central bank created base money in circulation in the central bank reserve accounts of a jurisdiction's commercial banks. Both are, therefore, mechanisms that exploit the capacity of a government to create money at will if it has its own central bank and its own fiat currency. See the glossary entry for government money creation for further explanation of this process.

It would be entirely possible for a government to avoid both processes. It could instead decide to make direct advances from its central bank to its government treasury department for that department to then make direct spending on policy as the government wished.

Unconventional monetary policy has by involving commercial banks in its processes a decided bias against democratic control of this capacity of a central bank to create money on behalf of the government to which it is accountable for use in the jurisdiction's economy and puts in place of that democratic control a bias towards commercial bank control of this process.

Unconventional, monetary policy has a number of further weaknesses:

  • The bias towards commercial bank distribution of central bank created money inherent within the quantitative easing and direct loan arrangements that are a part of unconventional monetary policy has resulted in an almost universal increase in inequality in those countries that have used these arrangements, largely because of the inflation of asset prices and the failure of that policy to support rising incomes of working people. This increase in inequality has created significant social tensions, some of which have become apparent in the rise of populist political movements.
  • The policy is operated independently of fiscal policy, which can also be used to manage inflation. The separation of these two intimately related tools and their management by separate agencies always has the potential to create this conflict that reduces the effectiveness of both policies.
  • The relationship between QE, in particular, and consumer price inflation is uncertain, although it is apparent from available data that inflation rates around the world fell from 2008 until 2021. Whether this was because of QE is, however, unclear.
  • The suggestion that QE would, by forcing investors to seek increased financial returns promote additional investment in the real economy has not been evidenced in practice. QE created funds were used for property backed lending and speculative activity in the main but did not promote new investment in productive capacity. If that was the aim it would have been much more effective for central government to have directed the use of the funds created.
  • The claim that QE was not used to fund government deficits appears to have been untrue. In the UK, there was an almost direct match between the issue of new government bonds and new QE bond purchases between the time of the onset of the Covid crisis in April 2020 and the end of 2021 meaning that QE did as a matter of fact supply direct government funding during the course of this period. The same trend was seen elsewhere.
  • QE has created a false debt, narrative. Governments, including out of the UK, have claimed that the bonds that the central banks have acquired remain outstanding as debt, even though they have been effectively cancelled by their repurchase, which fact is reflected by proper accounting in the Whole of Government Accounts. The quantum of government debt is as a consequence significantly overstated by these narratives, which have been used to justify austerity programmes.
  • Governments have also created false narratives as to the cost of servicing government debt as a consequence of the use of QE. For example, in the UK, almost one third of the claimed cost of government debt servicing is paid back to the government's own treasury as a consequence of it being paid to the Bank of England as a result of its ownership of government bonds acquired under the QE programme, with that Bank then refunding it to the government. This policy has been used as a justification for austerity programs when that justification does not exist.

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Unrealised losses

An unrealised loss is on that has yet to give rise to a cashflow consequence.

An unrealised loss can arise on many of the assets on which unrealised profits can also arise.

An unrealised profit can be reflected in a revaluation in a set of accounts, but with it being made clear that the revaluation has no cash flow consequences.

An unrealised loss is a more serious issue than an unrealised profit because an unrealised loss might suggest that the asset values used to support balance sheet values that in turn give an indication of the ability of a reporting entity to settle its obligations as they fall due might be overstated, as a result potentially leaving the creditors of an entity at risk of non-payment.

There has been dispute in accounting on the recognition of unrealised losses. Broadly speaking International Financial Reporting Standards were against their recognition, suggesting losses should be recognised when realised. This contradicted previous generally accepted accounting principles, which suggested prudence over-rode this.

The IFRS approach has now been watered down since the 2008 global financial crisis, to which this approach contributed, but still lacks prudence leaving creditors at risk. Many corporate failures arise because of the failure to recognise unrealised losses e.g. on land, buildings, investments, bonds and amongst the debtors of the entity.

The issue is of greatest significance, it seems, in accounting for banks.

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Unrealised profits

A gain arising as the result of the revaluation of an asset.

Assets most likely to be revalued include:

  • Land and buildings
  • Investments
  • Goodwill
  • Copyrights, patents and trademarks
  • Debtors and creditors, which can be restated to their market value (see mark-to-market).

These revaluations are unrealised even if being recorded as giving rise to profits (or losses if revalued negatively) until they give rise to cash consequences when they are they recognised as being realised.

Numerous accounting arbitrages can arise when companies seek to recognise unrealised profits as realised so that they might make dividend distributions from them. Audit failures can arise as a result if not spotted by an assiduous auditor.

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Unregulated Market

An alternative term for ‘offshore'. It is the sum of the commercial operations created to exploit the secrecy spaces created by secrecy jurisdictions. Unregulated entities trade within the unregulated market, either with other unregulated entities or with regulated entities.

The unregulated market exists to undermine regulated markets created and regulated by major democratic governments and are, as such, a direct assault on their democracy and the rule of law within the countries for which they are responsible.

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