The impact of ECB. Unconventional monetary policies

Abstract

This dissertation work deals with analysing more deeply the nature, motivations and effects, however measurable, of the unconventional monetary policies and it is aimed at addressing some questions about their adoption in the Eurozone. Particularly, UMP’s macroeconomic and financial market effects. Unconventional monetary policies gained prominence in the wake of the global financial crisis (GFC), as traditional monetary policy tools proved less effective in tackling the financial crisis and providing the required liquidity. In order to introduce the study, the first part of the work describes monetary policy measures. First, what policies are tried and their effectiveness. The focus will be placed on "unconventional" monetary policies (UMP) announced since the collapse of Lehman Brothers from the European Central Bank, whether or not adopted, aimed at buying the debt sovereign of the Euro Area, within the limits set by the Lisbon Treaty, and destined to stop the financial crisis of 2007-2008. UMPs are the ECB’s main tool to manage the stability in the Eurozone. The ECB initially referred to these undertakings as ‘non-standard’ policies (Coeuré, 2013) although, by 2014, the expression ‘unconventional’ was more widely used. The primary objective of the Eurosystem’s monetary policy is to maintain price stability, defined as the inflation rate below but close to two per cent on a medium period horizon. However, the zero-lower bound (ZLB) decreases the effectiveness of central banks’ conventional monetary policies thus they must resort to UMP. The origins of UMPs, though, can be traced to measures taken by the Bank of Japan in March 2001, which deployed some form of quantitative easing (QE) to tackle economic stagnation and combat deflation. Since those initial steps, UMPs have pursued by several other central banks, they have evolved and have taken various forms. Among these: the OMT, TLTRO, balance sheet policies (commonly termed “quantitative easing”), negative rates and forward guidance. ... [edited by Author]