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Euro Area Monetary Policy in Uncharted Waters

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Author Info

  • Emil Stavrev
  • Thomas Harjes
  • Martin Cihák

Abstract

We analyze the European Central Bank's (ECB's) response to the global financial crisis. Our results suggest that even during the crisis, the core part of ECB's monetary policy transmission-from policy rates to market rates-has continued to operate, but at a decreased efficiency. We also find some evidence that the ECB's non-standard measures, namely the lengthening of the maturity of monetary policy operations and the provision of funds at the fixed rate, reduced money market term spreads, facilitating the pass-through from policy to market rates. Furthermore, the results imply that the substantial increase in the ECB's balance sheet may have contributed to a reduction in government bond term spreads.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/185.

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Length: 72
Date of creation: 01 Aug 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/185

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Related research

Keywords: European Central Bank; Central bank policy; Economic models; European Monetary System; European Union; Liquidity controls; Monetary transmission mechanism;

This paper has been announced in the following NEP Reports:

References

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  1. Peter Hordahl & Oreste Tristani & David Vestin, 2004. "A joint econometric model of macroeconomic and term structure dynamics," Money Macro and Finance (MMF) Research Group Conference 2003 48, Money Macro and Finance Research Group.
  2. Glenn D. Rudebusch & Eric T. Swanson & Tao Wu, 2006. "The Bond Yield "Conundrum" from a Macro-Finance Perspective," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 24(S1), pages 83-109, December.
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  4. Ben S. Bernanke & Vincent R. Reinhart & Brian P. Sack, 2004. "Monetary policy alternatives at the zero bound: an empirical assessment," Finance and Economics Discussion Series 2004-48, Board of Governors of the Federal Reserve System (U.S.).
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  6. Qiang Dai & Kenneth J. Singleton, 2000. "Specification Analysis of Affine Term Structure Models," Journal of Finance, American Finance Association, vol. 55(5), pages 1943-1978, October.
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  8. Altunbas, Yener & Gambacorta, Leonardo & Marques-Ibanez, David, 2009. "Securitisation and the bank lending channel," European Economic Review, Elsevier, vol. 53(8), pages 996-1009, November.
  9. Helge Berger & Thomas Harjes & Emil Stavrev, 2008. "The ECB's Monetary Analysis Revisited," IMF Working Papers 08/171, International Monetary Fund.
  10. Frederic S. Mishkin, 1995. "Symposium on the Monetary Transmission Mechanism," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 3-10, Fall.
  11. Charles Bean & Jens D.J. Larsen & Kalin Nikolov, 2002. "Financial frictions and the monetary transmission mechanism: theory; evidence and policy implications," Working Paper Series 113, European Central Bank.
  12. Friedrich Heinemann & Katrin Ullrich, 2007. "Does it Pay to Watch Central Bankers’ Lips? The Information Content of ECB Wording," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 143(II), pages 155-185, June.
  13. Christopher A. Sims & Tao Zha, 1996. "Bayesian methods for dynamic multivariate models," Working Paper 96-13, Federal Reserve Bank of Atlanta.
  14. Gauti B. Eggertsson & Michael Woodford, 2004. "Policy Options in a Liquidity Trap," American Economic Review, American Economic Association, vol. 94(2), pages 76-79, May.
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Cited by:
  1. 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.
  2. Karagiannis, Stelios & Panagopoulos, Yannis & Vlamis, Prodromos, 2010. "Interest rate pass-through in Europe and the US: Monetary policy after the financial crisis," Journal of Policy Modeling, Elsevier, vol. 32(3), pages 323-338, May.
  3. Takatoshi Ito, 2009. "Fire, flood, and lifeboats: policy responses to the global crisis of 2007-09," Proceedings, Federal Reserve Bank of San Francisco, pages 207-249.
  4. Petrevski, Goran & Bogoev, Jane, 2012. "Interest rate pass-through in South East Europe: An empirical analysis," Economic Systems, Elsevier, vol. 36(4), pages 571-593.

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