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Monetary policy in exceptional times

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  • Reichlin, Lucrezia
  • Pill, Huw
  • Lenza, Michele

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.

Suggested Citation

  • Reichlin, Lucrezia & Pill, Huw & Lenza, Michele, 2010. "Monetary policy in exceptional times," CEPR Discussion Papers 7669, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:7669
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    References listed on IDEAS

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    11. 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.
    12. Gary Gorton, 2008. "The panic of 2007," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 131-262.
    13. den Haan, Wouter J. & Sumner, Steven W. & Yamashiro, Guy M., 2007. "Bank loan portfolios and the monetary transmission mechanism," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 904-924, April.
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    More about this item

    Keywords

    Monetary policy; Quantitative easing;

    JEL classification:

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

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