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

  • Romain Bouis
  • Łukasz Rawdanowicz
  • Jean-Paul Renne
  • Shingo Watanabe
  • Ane Kathrine Christensen

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.

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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 1081.

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Date of creation: 12 Aug 2013
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Handle: RePEc:oec:ecoaaa:1081-en
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