scholarly journals Playing with fire: the unintended consequences of monetary financing

2017 ◽  
pp. 247-257
Author(s):  
Leef H. Dierks
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Lower Bound ◽  
Euro Area ◽  
Balance Sheet ◽  
Unintended Consequences ◽  
Unconventional Monetary Policy ◽  
Monetary Policies ◽  
Policy Measures ◽  
Asset Purchases

To the extent that the ECB’s more recent monetary policies, among them cutting its main refinancing rate to a historical low of 0% in March 2016, failed to deliver the hoped for results in the wake of the financial crisis and the euro area started facing a “Japanifica-tion” (Dierks, 2015), unconventional monetary policy measures were adopted. These included unprecedented asset purchases, which caused the Eurosystem’s total assets to soar to €4.3trn (about 35% of Euro area GDP) as per mid-October 2017, the latest date for which data were available (fig. 1). Originally, these unconventional policy measures were designed to stimulate economic growth, particularly in the Medi-terranean Rim economies, and to spur inflation; “the (ECB’s) Gov-erning Council is more actively steering the size of the ECB’s balance sheet towards much higher levels in order to avoid the risks of too prolonged a period of low inflation in a situation where policy rates have reached their effective lower bound“ (ECB, 2014). In light of the most recent inflation data (fig. 2), this policy appears

scholarly journals Unconventional Monetary Policy Measures and Inflation Expectations

2015 ◽  
pp. 1-6
Author(s):  
Mehmet Pasaogullari
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Financial Markets ◽  
Large Scale ◽  
Balance Sheet ◽  
Inflation Expectations ◽  
Unconventional Monetary Policy ◽  
High Inflation ◽  
Policy Measures ◽  
Asset Purchases

The record increase in the size of the Federal Reserve's balance sheet after the financial crisis ignited fears among some people that high inflation would inevitably follow. We investigated whether those fears were supported in survey or market measures of inflation expectations around the time that large-scale asset purchases were announced. Nothing suggests that the Fed's new policy tools have been perceived by professional forecasters or financial markets as harbingers of hyperinflation.

scholarly journals Financialization and unconventional monetary policy: a financial-network analysis

2020 ◽  
Vol 30 (5) ◽  
pp. 1385-1428
Author(s):  
Chiara Perillo ◽  
Stefano Battiston
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
Financial Stability ◽  
Banking System ◽  
Real Economy ◽  
Unconventional Monetary Policy ◽  
The Real ◽  
Recent Debate ◽  
Policy Measures ◽  
Net Flows

Abstract Over the last decades, both advanced and emerging economies have experienced the emergence of the phenomenon known as financialization, that, until some time ago, was generally considered beneficial for the economy. The 2007-2008 crisis and the severe post-crisis recession called into question the assumptions underlying the positive perception of the role played by financialization in the economy. In particular, the effects of financialization on financial stability and inequality are now widely recognized. A recent debate focused on the effectiveness of unconventional monetary policy tools in transferring their effects on the financial sphere to the economic sphere (e.g., via stimulating the transmission of resources from the banking system to the real economy). Among these unconventional policy measures, Quantitative Easing (QE) has been recently implemented by the European Central Bank (ECB). In this context, two questions deserve more attention in the literature. First, to what extent QE may generate net flows of additional resources to the real economy. Second, to what extent QE may also alter the pattern of intra-financial exposures among financial actors and what are the implications in terms of financialization. Here, we address these two questions by mapping and analyzing the euro area multilayer macro-network of financial exposures among institutional sectors across financial instruments (i.e., loans, bonds, equity, and insurance and pension schemes) and we illustrate our approach on recently available data. We then test the effect of the implementation of ECB’s QE on some novel measures of financialization that we derive from the time evolution of the financial linkages in the multilayer macro-network of the euro area.

scholarly journals Unconventional Monetary Policies in the Euro Area, Japan, and the United Kingdom

2018 ◽  
Vol 32 (4) ◽  
pp. 147-172 ◽  
Author(s):  
Giovanni Dell’Ariccia ◽  
Pau Rabanal ◽  
Damiano Sandri
Keyword(s):  
Monetary Policy ◽  
United Kingdom ◽  
Interest Rates ◽  
Euro Area ◽  
Large Scale ◽  
Global Financial Crisis ◽  
Central Banks ◽  
Unconventional Monetary Policy ◽  
Monetary Policies ◽  
The United Kingdom

The global financial crisis hit hard in the euro area, the United Kingdom, and Japan. Real GDP from peak to trough contracted by about 6 percent in the euro area and the United Kingdom and by 9 percent in Japan. In all three cases, central banks cut interest rates aggressively and then, as policy rates approached zero, deployed a variety of untested and unconventional monetary policies. In doing so, they hoped to restore the functioning of financial markets, and also to provide further monetary policy accommodation once the policy rate reached the zero lower bound. In all three jurisdictions, the strategy entailed generous liquidity support for banks and other financial intermediaries and large-scale purchases of public (and in some cases private) assets. As a result, central banks’ balance sheets expanded to unprecedented levels. This paper examines the experience with unconventional monetary policies in the euro zone, the United Kingdom, and Japan. The paper starts with a discussion of how quantitative easing, forward guidance, and negative interest rate policies work in theory, and some of their potential side effects. It then reviews the implementation of unconventional monetary policy by the European Central Bank, the Bank of England, and the Bank of Japan, including a narrative of how central banks responded to the crisis and the evidence on the effects of unconventional monetary policy actions.

scholarly journals Non-Standard Monetary Policy Measures – Magic Wand or Tiger by the Tail?

2013 ◽  
Vol 64 (3) ◽  
Author(s):  
Ansgar Belke
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
Main Part ◽  
Asset Price ◽  
Unintended Consequences ◽  
Policy Implications ◽  
Magic Wand ◽  
Forward Guidance ◽  
Current Context ◽  
Policy Measures

AbstractThis paper briefly assesses the effectiveness of the different non-standard monetary policy tools in the Euro Area. Its main focus is on the Outright Monetary Transactions (OMT) Programme which is praised by some as the ECB’s “magic wand”. Moreover, it discloses further possible unintended consequences of these measures in the current context of weak economic activity and subdued growth going forward. For this purpose, it investigates specific risks for price stability and asset price developments in the first main part of the paper. It is not a too remote issue that the Fed does have a “tiger by the tail”, as Hayek (2009) expressed it, i. e. that the bank will finally have to accept either a recession or inflation and that there is no choice in between. Furthermore, it checks on whether the OMT programme really does not impose costs onto the taxpayer. Finally, it comes up with some policy implications from differences in money and credit growth in different individual countries of the Euro Area. The second main part of the paper assesses which other tools the ECB could use in order to stimulate the economy in the Euro Area. It does so by delivering details on whether and how the effectiveness of the ECB’s policies can be improved through more transparency and “forward guidance”.

scholarly journals Insights on monetary policy and public banking in Brazil (2008-2012)

Nova Economia ◽  
2016 ◽  
Vol 26 (1) ◽  
pp. 43-67
Author(s):  
Elena Soihet ◽  
Cesar Murilo Nogueira Cabral
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Economic Policy ◽  
Central Bank ◽  
Economic Environment ◽  
Economic Policies ◽  
Monetary Policies ◽  
Banking Policy ◽  
Policy Measures

Abstract: This paper aims to analyze the effect of monetary and banking policy during the subprime crises between 2008 and 2009 and afterwards (2010-2012). The main actions and the monetary policy of the Brazilian Central Bank are also discussed. We found that at the peak of the crisis, the main lever for restoration of the Brazilian economy was related to domestic economic policy measures, particularly the ones implemented by the main state-owned banks: Caixa Econômica Federal, Banco do Brasil and Banco Nacional de Desenvolvimento Econômico e Social. The supporting role of other economic policies and the external economic environment are also discussed here. The findings show that in the period immediately following the crisis, (2010-2012), both credit and monetary policies did not succeed in ensuring sustained economic growth.

scholarly journals Does Unconventional Monetary Policy Affect Bank Profitability in the Euro Area?

2020 ◽  
Vol 12 (1) ◽  
pp. 9
Author(s):  
Paolo Agnese ◽  
Paolo Capuano
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Euro Area ◽  
Unconventional Monetary Policy ◽  
Bank Profitability ◽  
Net Interest Margin ◽  
Policy Measures ◽  
The Impact ◽  
The Relationship ◽  
Interest Margin

This paper investigates the impact of unconventional monetary policy (UMP) on bank profitability in the euro area, over the period 2007-2019.In particular, through multiple regression models, we analyze the relationship between the UMP variables (Longer-term refinancing operations and Securities held for monetary policy purposes) and the main bank profitability variables used in the literature (Return on average equity, Return on average assets and Net interest margin).This work is original compared to recent studies on the subject as it considers the impact of UMP expressed in terms of volumes rather than in terms of interest rates on bank profitability variables.Our results suggest that the UMP adopted by the Eurosystem over the period considered is negatively associated with bank profitability expressed by the Return on average equity and the Return on average asset. By contrast, monetary policy measures do not seem to have had any effect on the Net interest margin. 

scholarly journals A SUNSPOT-BASED THEORY OF UNCONVENTIONAL MONETARY POLICY

2020 ◽  
pp. 1-32
Author(s):  
Roger E. A. Farmer ◽  
Pawel Zabczyk
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Financial Markets ◽  
Rational Expectations ◽  
Balance Sheet ◽  
Unconventional Monetary Policy ◽  
Efficient Outcome ◽  
Complete Set ◽  
Pareto Efficient ◽  
Financial Securities

This paper is about the effectiveness of qualitative easing, a form of unconventional monetary policy that changes the risk composition of the central bank balance sheet. We construct a general equilibrium model where agents have rational expectations, and there is a complete set of financial securities, but where some agents are unable to participate in financial markets. We show that a change in the risk composition of the central bank’s balance sheet affects equilibrium asset prices and economic activity. We prove that, in our model, a policy in which the central bank stabilizes non-fundamental fluctuations in the stock market is self-financing and leads to a Pareto efficient outcome.

Measuring the Short-Term Effects of the ECB’s Unconventional Monetary Policy on Financial Markets: A Review

2021 ◽  
Vol 54 (1) ◽  
pp. 37-77
Author(s):  
Lisa-Maria Kampl
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Event Studies ◽  
Empirical Literature ◽  
Unconventional Monetary Policy ◽  
Short Term ◽  
Comprehensive Overview ◽  
Announcement Effects ◽  
Policy Measures ◽  
Short Term Effects

Following the financial crisis in 2008, the ECB implemented various unconventional policy measures to respond to the tensions on the market. These measures had a significant impact and short-term effects on financial markets. This literature review provides a extensive overview of the empirical literature dealing with the short-term effects of this unconventional monetary policy using event studies. Furthermore, a methodological analysis of conducted event studies is carried out. First, we review empirical event studies focusing on the effects on the bond market, the stock market, as well as on international spill-over effects. Secondly, we carry out a methodological analysis of event studies that estimate the announcement effects of the ECB’s unconventional measures. In this context, the analysis provides insight into the process of determining relevant events, the categorization of those, measuring the surprise component, and determining control variables. By comparing the different approaches applied, we give a comprehensive overview of similarities as well as differences in the methodology used.

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