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Early Exit from ECB Bond Purchase Program Could Reduce GDP Growth and Inflation

Author

Listed:
  • Marius Clemens
  • Stefan Gebauer
  • Malte Rieth

Abstract

The European Central Bank is planning a gradual reduction of government bond purchases under the asset purchase program it initiated in 2015. The present study by the German Institute for Economic Research analyzes the potential macroeconomic implications of different exit strategies. The authors examined the potential effects of a reduction in net purchase volume, an early exit, and a faster exit from the program on output and inflation in the euro area. Model simulations showed that economic growth and inflation rates would decrease in all three scenarios. However, the effects of the scenario with reduced asset purchases are less severe than those of an exit from the program that is earlier or faster than expected. In particular, an early exit from the program should significantly affect inflation rates, an effect that the European Central Bank should factor into its decision-making process.

Suggested Citation

  • Marius Clemens & Stefan Gebauer & Malte Rieth, 2017. "Early Exit from ECB Bond Purchase Program Could Reduce GDP Growth and Inflation," DIW Economic Bulletin, DIW Berlin, German Institute for Economic Research, vol. 7(49), pages 533-540.
  • Handle: RePEc:diw:diwdeb:2017-49-3
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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.572801.de/diw_econ_bull_2017-49-3.pdf
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    More about this item

    Keywords

    Tapering; Quantitative Easing; Monetary Policy;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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