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Macroeconomic Effects of Unconventional Monetary Policy in the Euro Area

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  • G. PEERSMAN

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Abstract

I find that the Eurosystem can stimulate the economy beyond the policy rate by increasing the size of its balance sheet or the monetary base, that is so-called quantitative easing. The transmission mechanism turns out to be different compared to traditional interest rate innovations: (i) whilst the effects on economic activity and consumer prices reach a peak after about one year for an interest rate innovation, this is more than six months later for a shift in the monetary base that is orthogonal to the policy rate (ii) interest rate spreads charged by banks decline persistently after quantitative easing policies, whereas the spreads increase significantly after a fall in the policy rate (iii) there is no significant short-run liquidity effect after an interest rate innovation, that is additional bank loans are generated by a greater credit multiplier. In contrast, the multiplier declines considerably after an expansion of the Eurosystem’s balance sheet.

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Bibliographic Info

Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 11/734.

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Length: 30 pages
Date of creation: Jul 2011
Date of revision:
Handle: RePEc:rug:rugwps:11/734

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Keywords: Unconventional monetary policy; SVARs;

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Cited by:
  1. Christopher Martin & Costas Milas, 2012. "Quantitative Easing: A Sceptical Survey," Working Paper Series 73_12, The Rimini Centre for Economic Analysis.
  2. G. Peersman, 2011. "Bank Lending Shocks and the Euro Area Business Cycle," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/766, Ghent University, Faculty of Economics and Business Administration.
  3. L. Gambacorta & B. Hofmann & G. Peersman, 2011. "The Effectiveness of Unconventional Monetary Policy at the Zero Lower Bound: A Cross-Country Analysis," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/765, Ghent University, Faculty of Economics and Business Administration.
  4. Landais, Bernard, 2012. "Reformulation du modèle macroéconomique de la nouvelle synthèse : crédits, politique monétaire et écarts de taux
    [A reformulation of the new synthesis macroeconomic model : credits, monetary     ," MPRA Paper 38665, University Library of Munich, Germany.
  5. Ewald" "Nowotny, 2012. "Der Euro - Vergangenheit, Gegenwart, Zukunft," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 38(2), pages 273-284.

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