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

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  • Ansgar Belke

    ()
    (University of Duisburg-Essen, Essen, Department of Economics)

Abstract

This 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”.

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Bibliographic Info

Article provided by Lucius & Lucius in its journal Review of Economics.

Volume (Year): 64 (2013)
Issue (Month): 3 ()
Pages: 341-364

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Handle: RePEc:lus:reveco:v:64:y:2013:i:3:p:341-364

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Web page: http://www.review-of-economics.com

Related research

Keywords: central bank transparency; euro area; forward guidance; non-standard monetary policies; Outright Monetary Transactions; Quantitative Easing; segmentation of credit markets;

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  1. Matteo Falagiarda & Stefan Reitz, 2013. "Announcements of ECB Unconventional Programs: Implications for the Sovereign Risk of Italy," Kiel Working Papers 1866, Kiel Institute for the World Economy.
  2. Menno Middeldorp, 2011. "Central Bank Transparency, the Accuracy of Professional Forecasts, and Interest Rate Volatility," Working Papers, Utrecht School of Economics 11-12, Utrecht School of Economics.
  3. Clemens J.M. Kool & Daniel L. Thornton, 2012. "How effective is central bank forward guidance?," Working Papers, Federal Reserve Bank of St. Louis 2012-063, Federal Reserve Bank of St. Louis.
  4. Sven Steinkamp & Frank Westermann, 2012. "On Creditor Seniority and Sovereign Bond Prices in Europe," Working Papers, Institute of Empirical Economic Research 92, Institute of Empirical Economic Research.
  5. Brunnermeier, Markus K & Pedersen, Lasse Heje, 2007. "Market Liquidity and Funding Liquidity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6179, C.E.P.R. Discussion Papers.
  6. repec:use:tkiwps:1205 is not listed on IDEAS
  7. N. Nergiz Dincer & Barry Eichengreen, 2007. "Central Bank Transparency: Where, Why, and with What Effects?," NBER Working Papers 13003, National Bureau of Economic Research, Inc.
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