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Unconventional monetary policy of the ECB during the financial crisis: An assessment and new evidence

  • Christiaan Pattipeilohy
  • Jan Willem van den End
  • Mostafa Tabbae
  • Jon Frost
  • Jakob de Haan

We first sketch how central banks have used unconventional monetary policy measures by using three indicators based on the composition of the balance sheet of eleven central banks. Our analysis suggests that although the ECB's balance sheet has increased dramatically during the crisis, the non-standard monetary policy measures had only a moderate impact on the composition of the ECB's balance sheet compared to other central banks, such as the Fed and the Bank of England. Next, we take stock of research analysing the effects of unconventional monetary policy of the ECB after the onset of the crisis. A crucial question is to what extent these measures have been able to affect interest rates, thereby restoring the monetary policy transmission process and supporting the central bank objectives. Finally, we offer new evidence on the effectiveness of the ECB's unconventional monetary policy measures, i.e. extended liquidity provision (LTRO) and the Securities Market Programme (SMP). Our results suggest that the LTRO interventions in general had a favorable (short-term) effect on government bond yields. Changes in the SMP only had a visible downward effect on bond yields in Summer 2011, when the program was reactivated for Italy and Spain, but this effect dissipated within a few weeks.

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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 381.

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Date of creation: May 2013
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Handle: RePEc:dnb:dnbwpp:381
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  1. Jan Willem van den End, 2010. "Liquidity Stress-Tester: Do Basel III and Unconventional Monetary Policy Work?," DNB Working Papers 269, Netherlands Central Bank, Research Department.
  2. de Haan,Jakob & Oosterloo,Sander & Schoenmaker,Dirk, 2015. "Financial Markets and Institutions," Cambridge Books, Cambridge University Press, number 9781107539365.
  3. Peersman, Gert, 2011. "Macroeconomic effects of unconventional monetary policy in the euro area," Working Paper Series 1397, European Central Bank.
  4. Svensson, Lars E O, 1996. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," CEPR Discussion Papers 1511, C.E.P.R. Discussion Papers.
  5. Dimitri Vayanos & Robin Greenwood, 2008. "Bond Supply and Excess Bond Returns," FMG Discussion Papers dp607, Financial Markets Group.
  6. Leonardo Gambacorta & Boris Hofmann & Gert Peersman, 2014. "The Effectiveness of Unconventional Monetary Policy at the Zero Lower Bound: A Cross‐Country Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(4), pages 615-642, 06.
  7. Blinder, Alan S. & Ehrmann, Michael & de Haan, Jakob & Fratzscher, Marcel & Jansen, David-Jan, 2008. "Central Bank communication and monetary policy: a survey of theory and evidence," Working Paper Series 0898, European Central Bank.
  8. Cúrdia, Vasco & Woodford, Michael, 2011. "The central-bank balance sheet as an instrument of monetarypolicy," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 54-79, January.
  9. Aït-Sahalia, Yacine & Andritzky, Jochen & Jobst, Andreas & Nowak, Sylwia & Tamirisa, Natalia, 2012. "Market response to policy initiatives during the global financial crisis," Journal of International Economics, Elsevier, vol. 87(1), pages 162-177.
  10. Emil Stavrev & Thomas Harjes & Martin Cihák, 2009. "Euro Area Monetary Policy in Uncharted Waters," IMF Working Papers 09/185, International Monetary Fund.
  11. Paolo Angelini & Andrea Nobili & Maria Cristina Picillo, 2009. "The interbank market after August 2007: what has changed, and why?," Temi di discussione (Economic working papers) 731, Bank of Italy, Economic Research and International Relations Area.
  12. Stephan Fahr & Roberto Motto & Massimo Rostagno & Frank Smets & Oreste Tristani, 2013. "A monetary policy strategy in good and bad times: lessons from the recent past," Economic Policy, CEPR;CES;MSH, vol. 28(74), pages 243-288, 04.
  13. Heiko Hesse & Nathaniel Frank, 2009. "The Effectiveness of Central Bank Interventions During the First Phase of the Subprime Crisis," IMF Working Papers 09/206, International Monetary Fund.
  14. Ghysels, Eric & Idier, Julien & Manganelli, Simone & Vergote, Olivier, 2013. "A high frequency assessment of the ECB Securities Markets Programme," CEPR Discussion Papers 9778, C.E.P.R. Discussion Papers.
  15. Vladimir Klyuev & Phil De Imus & Krishna Srinivasan, 2009. "Unconventional Choices for Unconventional Times Credit and Quantitative Easing in Advanced Economies," IMF Staff Position Notes 2009/27, International Monetary Fund.
  16. Kilponen , Juha & Laakkonen, Helinä & Vilmunen, Jouko, 2012. "Sovereign risk, European crisis resolution policies and bond yields," Research Discussion Papers 22/2012, Bank of Finland.
  17. Beirne, John & Dalitz, Lars & Ejsing, Jacob & Grothe, Magdalena & Manganelli, Simone & Monar, Fernando & Sahel, Benjamin & Sušec, Matjaž & Tapking, Jens & Vong, Tana, 2011. "The impact of the Eurosystem's covered bond purchase programme on the primary and secondary markets," Occasional Paper Series 122, European Central Bank.
  18. Gert Peersman, 2012. "Effectiveness of Unconventional Monetary Policy at the Zero Lower Bound," 2012 Meeting Papers 400, Society for Economic Dynamics.
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