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Monetary policy in exceptional times
[Preventing deflation: Lessons from Japan’s experience in the 1990s]

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  • Michele Lenza
  • Huw Pill
  • Lucrezia Reichlin

Abstract

This paper describes the way in which the European Central Bank (ECB), the Federal Reserve and the Bank of England conducted monetary policy since the beginning of the financial crisis in August 2007. We argue that both quantitative easing – and the other non-standard measures introduced by central banks that changed the composition of the asset side of their balance sheets (so-called ‘qualitative easing’) – acted mainly through their effects on interest rates and, in particular, on money market spreads, rather than solely through ‘quantity effects’ in terms of the money supply. We perform a quantitative exercise on the euro area which estimates the effect of the reduction of these spreads to the broader economy.— Michele Lenza, Huw Pill and Lucrezia Reichlin

Suggested Citation

  • Michele Lenza & Huw Pill & Lucrezia Reichlin, 2010. "Monetary policy in exceptional times [Preventing deflation: Lessons from Japan’s experience in the 1990s]," Economic Policy, CEPR;CES;MSH, vol. 25(62), pages 295-339.
  • Handle: RePEc:oup:ecpoli:v:25:y:2010:i:62:p:295-339.
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    File URL: http://hdl.handle.net/10.1111/j.1468-0327.2010.00240.x
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    References listed on IDEAS

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    1. Marta Bańbura, 2008. "Large Bayesian VARs," 2008 Meeting Papers 334, Society for Economic Dynamics.
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    5. De Mol, Christine & Giannone, Domenico & Reichlin, Lucrezia, 2006. "Forecasting Using a Large Number of Predictors: Is Bayesian Regression a Valid Alternative to Principal Components?," CEPR Discussion Papers 5829, C.E.P.R. Discussion Papers.
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    7. Marta Banbura & Domenico Giannone & Lucrezia Reichlin, 2010. "Large Bayesian vector auto regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 71-92.
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    More about this item

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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