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Unconventional Monetary Policy in Theory and in Practice

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  • Martina Cecioni

    ()
    (Banca d'Italia)

  • Giuseppe Ferrero

    ()
    (Banca d'Italia)

  • Alessandro Secchi

    ()
    (Banca d'Italia)

Abstract

In this paper, after discussing the theoretical underpinnings of unconventional monetary policy measures, we review the existing empirical evidence on their effectiveness, focusing on those adopted by the European Central Bank and by the Federal Reserve. These measures operate in two ways: through the signalling channel and through the portfolio-balance channel. In the former, the central bank can use communication to steer interest rates and to restore confidence in the financial markets; the latter hinges on the hypothesis of imperfect substitutability of assets and liabilities in the balance sheet of the private sector and postulates that the central bank’s asset purchases and liquidity provision lower financial yields and improve funding conditions. The review of the empirical literature suggests that the unconventional measures were effective and that their impact on the economy was sizeable. However, a very large degree of uncertainty surrounds the precise quantification of these effects.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Questioni di Economia e Finanza (Occasional Papers) with number 102.

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Date of creation: Sep 2011
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Handle: RePEc:bdi:opques:qef_102_11

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Keywords: Central bank; unconventional monetary policy; financial crisis; signalling channel; portfolio balance channel;

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Cited by:
  1. Darracq Pariès, Matthieu & De Santis, Roberto A., 2013. "A non-standard monetary policy shock: the ECB’s 3-year LTROs and the shift in credit supply," Working Paper Series 1508, European Central Bank.
  2. Leonardo Gambacorta & Boris Hofmann & Gert Peersman, 2012. "The Effectiveness of Unconventional Monetary Policy at the Zero Lower Bound: A Cross-Country Analysis," BIS Working Papers 384, Bank for International Settlements.
  3. Wanvimol Sawangngoenyuang & Sukrita Sa-nguanpan & Worawut Sabborriboon, 2012. "Financial Systemic Stability: Challenging Aspects of Central Banks," Working Papers 2012-06, Economic Research Department, Bank of Thailand.
  4. repec:spo:wpecon:info:hdl:2441/6ggbvnr6munghes9ob627a1r2 is not listed on IDEAS
  5. Marco Casiraghi & Eugenio Gaiotti & Lisa Rodano & Alessandro Secchi, 2013. "The impact of unconventional monetary policy on the Italian economy during the sovereign debt crisis," Questioni di Economia e Finanza (Occasional Papers) 203, Bank of Italy, Economic Research and International Relations Area.
  6. Albinowski, Maciej & Ciżkowicz, Piotr & Rzońca, Andrzej, 2013. "Distrust in the ECB – product of failed crisis prevention or of inappropriate cure?," MPRA Paper 48242, University Library of Munich, Germany.
  7. Céline Antonin & Christophe Blot & Paul Hubert & Fabien Labondance & Catherine Mathieu & Christine Rifflart & Vincent Touze, 2013. "Politiques monétaires : est-ce le début de la fin ?," Sciences Po publications info:hdl:2441/6ggbvnr6mun, Sciences Po.
  8. Stefano Neri, 2013. "The impact of the sovereign debt crisis on bank lending rates in the euro area," Questioni di Economia e Finanza (Occasional Papers) 170, Bank of Italy, Economic Research and International Relations Area.
  9. Marcello Pericoli, 2012. "Expected inflation and inflation risk premium in the euro area and in the United States," Temi di discussione (Economic working papers) 842, Bank of Italy, Economic Research and International Relations Area.
  10. Affinito, Massimiliano, 2013. "Central bank refinancing, interbank markets and the hypothesis of liquidity hoarding: evidence from a euro-area banking system," Working Paper Series 1607, European Central Bank.
  11. Lucia Esposito & Andrea Nobili & Tiziano Ropele, 2013. "The management of interest rate risk during the crisis: evidence from Italian banks," Temi di discussione (Economic working papers) 933, Bank of Italy, Economic Research and International Relations Area.
  12. Richhild Moessner, 2014. "Effects of ECB balance sheet policy announcements on inflation expectations," DNB Working Papers 416, Netherlands Central Bank, Research Department.
  13. Xavier Timbeau, 2013. "La crise sur un plateau : perspectives 2013-2014," Sciences Po publications info:hdl:2441/6ggbvnr6mun, Sciences Po.
  14. repec:spo:wpecon:info:hdl:2441/6ggbvnr6munghes9oasij6sc6 is not listed on IDEAS
  15. Abbassi, Puriya & Linzert, Tobias, 2012. "The effectiveness of monetary policy in steering money market rates during the financial crisis," Journal of Macroeconomics, Elsevier, vol. 34(4), pages 945-954.
  16. Massimiliano Affinito, 2013. "Central bank refinancing, interbank markets, and the hypothesis of liquidity hoarding: evidence from a euro-area banking system," Temi di discussione (Economic working papers) 928, Bank of Italy, Economic Research and International Relations Area.
  17. Marcello Pericoli, 2013. "Macroeconomic and monetary policy surprises and the term structure of interest rates," Temi di discussione (Economic working papers) 927, Bank of Italy, Economic Research and International Relations Area.
  18. Menzie D Chinn, 2013. "Global spillovers and domestic monetary policy," BIS Working Papers 436, Bank for International Settlements.
  19. Marco Passarella, 2013. "Financial Integration in the European Union: an Analysis of ECB’s role," Working papers wpaper04, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
  20. Claudio Borio, 2012. "The financial cycle and macroeconomics: What have we learnt?," BIS Working Papers 395, Bank for International Settlements.
  21. Gert Peersman, 2012. "Effectiveness of Unconventional Monetary Policy at the Zero Lower Bound," 2012 Meeting Papers 400, Society for Economic Dynamics.
  22. David ARISTEI & Manuela Gallo, 2012. "Interest Rate Pass-Through in the Euro Area during the Financial Crisis: a Multivariate Regime-Switching Approach," Quaderni del Dipartimento di Economia, Finanza e Statistica 107/2012, Università di Perugia, Dipartimento Economia, Finanza e Statistica.
  23. Fabio Busetti & Pietro Cova, 2013. "The macroeconomic impact of the sovereign debt crisis: a counterfactual analysis for the Italian economy," Questioni di Economia e Finanza (Occasional Papers) 201, Bank of Italy, Economic Research and International Relations Area.

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