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The Effectiveness of Monetary Policy since the Onset of the Financial Crisis

Author

Listed:
  • Romain Bouis

    (OECD)

  • Łukasz Rawdanowicz

    (OECD)

  • Jean-Paul Renne

    (Banque de France)

  • Shingo Watanabe

    (OECD)

  • Ane Kathrine Christensen

    (OECD)

Abstract

In the wake of the Great Recession, a massive monetary policy stimulus was provided in the main OECD economies. It helped to stabilise financial markets and avoid deflation. Nonetheless, GDP growth has been sluggish and in some countries lower than expected given the measures taken, and estimated economic slack remains large. In this context, this paper assesses the effectiveness of monetary policy in recent years. It finds that notwithstanding an almost full transmission of policy interest rate cuts and unconventional policy measures to higher asset prices and lower cost of credit in and outside the banking sector in most countries, with the exception of vulnerable euro area economies, monetary policy stimulus did not show up in stronger growth due to a combination of three factors. First, lower policy interest rates may not have provided as much stimulus as expected given the evidence of a decrease in natural interest rates, resulting from the estimated decline in potential GDP growth in the wake of the crisis. Second, balance sheet adjustments of non-financial companies and households, large uncertainty as well as simultaneous and considerable fiscal consolidation in many OECD countries constituted important headwinds. Third, the bank lending channel of monetary policy transmission appears to have been impaired, mainly due to considerable balance sheet adjustments and prevailing uncertainty, which together limited banks’ capacity and willingness to supply credit. The paper also stresses that the monetary accommodation risks having unintended negative consequences which are likely to increase with its duration. L'efficacité de la politique monétaire depuis le début de la crise financière Dans le sillage de la Grande Récession, un important stimulus monétaire a été fourni dans les principales économies de l’OCDE. Il a permis de stabiliser les marchés financiers et d’éviter la déflation. Toutefois, la croissance du PIB a été lente et dans certains pays plus faible qu’attendue compte tenu des mesures prises, et le ralentissement économique estimé demeure important. Dans ce contexte, ce papier évalue l’efficacité de la politique monétaire au cours des années récentes. Il trouve qu’en dépit d’une transmission presque complète des baisses de taux d’intérêt et des mesures non conventionnelles de politique monétaire à des prix d’actifs plus élevés et un coût du crédit plus faible à l’intérieur et à l’extérieur du secteur bancaire dans la plupart des pays, à l’exception des économies vulnérables de la zone euro, le stimulus de la politique monétaire ne s’est pas traduit par une croissance plus forte en raison de la combinaison de trois facteurs. Premièrement, des taux plus faibles de politique monétaire pourraient ne pas avoir fourni autant de stimulus qu’attendu étant donné la baisse des taux d’intérêt naturels résultant d’une diminution estimée de la croissance potentielle du PIB dans le sillage de la crise. Deuxièmement, les ajustements des bilans des entreprises non financières et des ménages, une grande incertitude ainsi qu’une consolidation budgétaire simultanée et considérable dans de nombreux pays de l’OCDE ont constitué d’importants vents contraires. Troisièmement, le canal du crédit bancaire de transmission de la politique monétaire semble avoir été réduit, principalement en raison des ajustements considérables des bilans et de l'incertitude qui règne, limitant à la fois la capacité et la volonté des banques à proposer des crédits. Le papier souligne également que l’assouplissement monétaire risque d’avoir des conséquences négatives non souhaitées susceptibles d’augmenter avec la durée.

Suggested Citation

  • Romain Bouis & Łukasz Rawdanowicz & Jean-Paul Renne & Shingo Watanabe & Ane Kathrine Christensen, 2013. "The Effectiveness of Monetary Policy since the Onset of the Financial Crisis," OECD Economics Department Working Papers 1081, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:1081-en
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    File URL: http://dx.doi.org/10.1787/5k41zq9brrbr-en
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Kleczka, Mitja, 2015. "Monetary Policy, Fiscal Policy, and Secular Stagnation at the Zero Lower Bound. A View on the Eurozone," MPRA Paper 67228, University Library of Munich, Germany.
    2. Jannsen, Nils & Potjagailo, Galina & Wolters, Maik H., 2015. "Monetary policy during financial crises: Is the transmission mechanism impaired?," Kiel Working Papers 2005, Kiel Institute for the World Economy (IfW).
    3. Gustavo Adler & Carolina Osorio Buitron, 2017. "Tipping the Scale? The Workings of Monetary Policy through Trade," IMF Working Papers 17/142, International Monetary Fund.
    4. Łukasz Rawdanowicz & Romain Bouis & Kei-Ichiro Inaba & Ane Kathrine Christensen, 2014. "Secular Stagnation: Evidence and Implications for Economic Policy," OECD Economics Department Working Papers 1169, OECD Publishing.
    5. repec:ecb:ecbops:2010161 is not listed on IDEAS
    6. repec:bla:intfin:v:20:y:2017:i:1:p:48-63 is not listed on IDEAS
    7. Jan Pablo Burgard & Matthias Neuenkirch & Matthias Nöckel, 2016. "State-Dependent Transmission of Monetary Policy in the Euro Area," Research Papers in Economics 2016-15, University of Trier, Department of Economics.
    8. Willy Chetwin & Amy Wood, 2013. "Neutral interest rates in the post-crisis period," Reserve Bank of New Zealand Analytical Notes series AN2013/07, Reserve Bank of New Zealand.
    9. Aida Caldera Sánchez & Alain de Serres & Filippo Gori & Mikkel Hermansen & Oliver Röhn, 2017. "Strengthening economic resilience: Insights from the post-1970 record of severe recessions and financial crises," OECD Economic Policy Papers 20, OECD Publishing.
    10. Claudio Borio & Leonardo Gambacorta & Boris Hofmann, 2017. "The influence of monetary policy on bank profitability," International Finance, Wiley Blackwell, vol. 20(1), pages 48-63, March.
    11. Jan Willem van den End & Marco Hoeberichts, 2014. "Low real rates as driver of secular stagnation: empirical assessment," DNB Working Papers 444, Netherlands Central Bank, Research Department.
    12. Dovern, Jonas & Zuber, Christopher, 2017. "The Effect of Recessions on Potential Output Estimates: Size, Timing, and Determinants," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168180, Verein für Socialpolitik / German Economic Association.
    13. Bindseil, Ulrich & Domnick, Clemens & Zeuner, Jörg, 2015. "Critique of accommodating central bank policies and the 'expropriation of the saver' - A review," Occasional Paper Series 161, European Central Bank.
    14. Šević, Aleksandar & Brawn, Derek, 2015. "Do demographic changes matter? A cross-country perspective," Journal of Multinational Financial Management, Elsevier, vol. 30(C), pages 36-61.
    15. Cătălin-Emilian HUIDUMAC-PETRESCU & Alexandru Cătălin POPA, 2016. "Macroeconomic strategies for the prevention of economic and financial crisis," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(606), S), pages 171-182, Spring.
    16. Olmos, Lorena & Sanso Frago, Marcos, 2014. "Non-linear effects of the U.S. Monetary Policy in the Long Run," MPRA Paper 57770, University Library of Munich, Germany.

    More about this item

    Keywords

    credit; crise financière; crédit; financial crisis; financial markets; marchés financiers; monetary policy; natural interest rates; politique monétaire; taux d’intérêt naturels;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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