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

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  • Ansgar Belke

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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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File URL: http://repec.rwi-essen.de/files/REP_13_447.pdf
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Bibliographic Info

Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0447.

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Length: 30 pages
Date of creation: Oct 2013
Date of revision:
Handle: RePEc:rwi:repape:0447

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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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References

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  1. Clemens J.M. Kool & Daniel L. Thornton, 2012. "How effective is central bank forward guidance?," Working Papers 2012-063, Federal Reserve Bank of St. Louis.
  2. Menno Middeldorp, 2011. "Central bank transparency, the accuracy of professional forecasts, and interest rate volatility," Staff Reports 496, Federal Reserve Bank of New York.
  3. Lasse Heje Pederson & Markus K Brunnermeier, 2007. "Market Liquidity and Funding Liquidity," FMG Discussion Papers dp580, Financial Markets Group.
  4. 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.
  5. Westermann, Frank & Steinkamp, Sven, 2013. "On Creditor Seniority and Sovereign Bond Prices in Europe," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79848, Verein für Socialpolitik / German Economic Association.
  6. 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.
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