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Standard accounts of the Great Depression attribute an important causal role to monetary policy errors in accounting for the catastrophic collapse in economic activity observed in the early 1930s. While views vary on the relative importance of money versus credit contraction in the propagation of this policy error to the wider economy and ultimatel...
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Citations
... La PMNC -denominada así para distinguirla de la previa a la crisis de 2008-, surge como una forma de mantener el mecanismo de transmisión de la regla monetaria en la actividad económica, los precios y la estabilidad financiera (Giannone et al., 2011). Si bien no es del todo innovadora en algunos instrumentos, la combinación de medidas, una escala operativa sin precedente y los propósitos perseguidos, sitúan a la autoridad monetaria en una posición no convencional frente a los agentes privados (Potter y Smets, 2009). ...
In this paper both the main characteristics of the European Central Bank's (ECB) unconventional monetary policy and its effectiveness on the labour market between 2008-2019 are dealt with. Our econometric analysis is based on a panel vector autoregression (PVAR) methodology; it is empirically shown that policy rate changes and policy innovations such as forward guidance strategies turn out to be effective over the first twelve months. However, the empirical evidence appears to suggest that the effectiveness of the ECB’s balance sheet policy with regards reducing the unemployment rate is not as strong. Our results reveal that unconventional monetary policies have contributed to a gradual, albeit slow, recovery of both economic activity and the labor force’s employment level.
... In consequence, the ECB used outright asset purchases in dysfunctional markets to improve their functioning (Lenza, Pill, and Reichlin 2010) and not to expand liquidity to prompt portfolio re-allocation in the private sector. Indeed, asset purchases under the SMP were offset by specific fine-tuning operations that absorbed liquidity (Giannone et al. 2011). The suspension of SMP sterilization was announced only in 2014. ...
... In line with that, the goal of outright asset purchases was not to stimulate the recovery but to safeguard the transmission mechanism (European Central Bank 2017). Therefore, Peersman (2011) perceives the ECB responses to the crisis as not fully "unconventional", whereas Giannone et al. (2011) regards the ECB expansion of its balance sheet only as a by-product of a support directed at the crucial segments of the financial market to grease the transmission mechanism and to complement interest rate decisions, rather than to replace them (as opposed to the Fed). Ultimately, the ECB's statements and actions could be viewed as distinct from the expansionary approach, which was also reflected in the discrepant behavior of monetary aggregates in the US and the EA. ...
Post Great Recession vector autoregression analysis revealed that the reserves? creation of the European Central Bank (ECB) until 2015 had an impact on the perceived credit risk that was either statistically insignificant or opposite to the expected one. The ECB?s unconventional measures returned the real GDP growth merely to an equilibrium of nil growth. In the United States, unconventional balance sheet policies of the Federal Reserve System (the Fed) significantly increased the real GDP by between 3.2% and 5.3% and reduced the initial rise of the perceived credit risk. We argue that the plausible reason for the discrepancy between the Fed and the ECB?s outcomes were the contrasting goals of both central banks. The major conclusion is that creation of money by the central bank may support the economy after a crisis, but it cannot deliver long-run prosperity. The positive effects of balance sheet policies were found to be short-lasting.
The paper is available on the web site: http://www.panoeconomicus.org/index.php/jorunal
... In the euro area, existing contributions on the effect of specific ECB unconventional monetary policies focus either on interbank and money market rates (Abbassi & Linzert, 2011;Angelini, Nobili, & Picillo, 2011) or on macroeconomic, monetary and credit variables (Altavilla et al., 2016;Darracq-Paries & De Santis, 2015;Giannone, Lenza, Pill, & Reichlin, 2011) or, on the perceived sovereign risk of euro area countries (Falagiarda & Reitz, 2015;Ghysels, Idier, Manganelli, & Vergote, 2014). In addition, there are studies such as Kucharcukova, Claeys, and Vasicek (2016) who provide a comparison of the macroeconomic impact of conventional and unconventional monetary policies in the Eurozone and discuss the transmission of these shocks to six non-Eurozone economies. ...
... For instance, Meyer and Zaman (2013) attempt to forecast inflation by constraining the path of the federal funds rate. Giannone et al. (2011) use conditional forecasts to reflect the anticipated evolution of the ECB's balance sheet given the observed path of economic activity during the financial crisis while Giannone, Lenza, Momferatou, and Onorante (2014), produce inflation forecasts conditional on alternative paths of inflation components. Schorfheide and Song (2013) and Aastveit, Carriero, Clark, and Marcellino (2014) implement multistep forecasts of economic growth, prices, and many other macroeconomic indicators conditional on current quarter forecasts obtained from other sources. ...
This paper employs a medium scale Bayesian VAR model to provide a rich picture of the transmission of unconventional monetary policy (UMP) shocks in various dimensions of the economy, and to shed light on the appropriate policy mix that the central bank could adopt to fulfil its price stability mandate. We show that UMP shocks have a significant positive impact on both economic activity and inflation; stem financial market stress episodes and boost economic sentiment. Additionally, several channels seem to have been activated, including the exchange rate, inflation expectations and the bank lending channel. Counterfactual policy analysis suggests that a policy mix that combines the use of permanently negative interest rates with a balance sheet expansion at a steady pace over a long period, could bring inflation closer to the target. Alternative policy scenarios that, either give more weight on the purchases during the first months or, terminate asset purchases too early, would fail to keep inflation on track to meet its target.
... This latter fall in money growth was so substantial that it revolved analogies to the downward dynamics observed during the Great Depression.Giannone, Lenza, Pill, and Reichlin (2011) conduct a detailed comparison of these two episodes. ...
Yes, they can. I propose a new method to detect credit booms and busts from multivariate systems-monetary Bayesian vector autoregressions. When observed credit is systematically higher than credit forecasts justified by real economic activity variables, a positive credit gap emerges. The methodology is tested for 31 advanced and emerging market economies. The resulting credit gaps fit historical evidence well and detect turning points earlier, outperforming the credit-to-GDP gaps in signaling financial crises, especially at longer horizons. The results survive in real time and can shed light on the drivers of credit booms.
... Financial globalization is considered as one of the phenomenon that contribute to the occurrence of the financial crisis and its dispersion all over the countries through its effect on speedy domestic credit growth and current account disequilibrium (Claessens et al, 2010), (Giannone et al., 2011) and (Lane, 2012). Using cross country data several empirical studies like Claessens et.al. ...
This paper analyzes theoretically the role of financial integration on economic growth and empirically examines the influence of financial integration on Ethiopian economic growth. Many researchers find different investigation results during their data analysis on the impact of financial integration on economic growth. The outcome of most researchers indicate that financial integration has a positive contribution to economic growth, while the result of quite a few numbers of researchers suggested that financial integration has a negative influence on economic growth. Similarly, few of them propose that the relationship between these two variables as bi- directional. Furthermore, literatures categorize the impact of financial sector on economic growth into four basic hypotheses. Which are supply leading, demand following, bidirectional, and independent hypothesis. These hypotheses suggest that financial integration has different role on economic growth and all of them are supported by several research results of various researchers. It is considered that the main reason behind these contrasting research results are the level of financial integration and the composition of financial flows. Moreover, the financial crises that occur in recent decades created a heated debate among researchers on the advantages and disadvantages of financial integration. However, most economists agree that financial integration is beneficial to the economy. The result of this paper analysis also shows, financial integration has a positive impact on the Ethiopian economic performance.
... Many concentrate on the impacts of nonstandard monetary policies on financial variables. Studies on the effects of either announcements or implementation of the ECB's unconventional policies variously examine the impacts on sovereign spreads (Matteo Falagiarda and Stefan Reitz, 2015), interbank rates (Puriya Abbassi and Tobias Linzert, 2011), covered bond markets (John Beirne et al., 2011), money market rates (Paolo Angelini, Andrea Nobili, and Cristina Picillo, 2011), anda number of monetary and credit variables (Domenico Giannone et al., 2011). Other studies are directly concerned with the macroeconomic variables (e.g., Michele Lenza, Huw Pill, and Lucrezia Reichlin, 2010;Carlo Altavilla, Domenico Giannone, and Michele Lenza, 2014;Gert Peersman 2011;Leonardo Gambacorta, Boris Hofmann, and Gert Peersman, 2014). ...
In this article, we present the impact of the monetary policy stance of the European Central Bank(ECB)since 2007 on bank lending in the euro area and compare the effects of the main measures: interest rate changes, liquidity provision, and asset purchase programmes. We also analyse the channels through which monetary policy might influence the banking system and narrow our focus to the individual countries. The main results indicate stimulating impact of ECB?s policy stance on bank lending that extends its influence mainly through interest rate cuts further supported by the liquidity provision and asset purchase programmes. However, we also find considerable differences across the member states, of ten depending on the state of the banking system and loan demand in the member state. The results support the variety of monetary policy measures introduced by the ECB, as each played its own role in supporting the banking system and encouraging bank lending in the euro area.
... 'base money'). In the same vein, Giannone et al. (2012) argue that it is the increase in ECB's base money that can adequately record non-standard monetary policy measures' effects also following Goodhart's analysis (2010). ...
In this paper we study the determinants of lending margins paid by euro-area corporates for their bank loans. Across two separate groups of countries (distressed and non-distressed) we examine whether lending margins have been affected by structural changes in the banking sector, the credit and liquidity position of banks and the costs of funding in the corporate and sovereign bond markets. The role of ECB policies with respect to narrowing down the fragmentation in the bank lending channel is also investigated through a structural panel VAR model for the period 2003:1 to 2014:12.
... Our results confirm the existing literature, since Peersman (2011) and Fahr et al. (2010) suggest that central bank was effective in supporting euro area economy. Also, Giannone et al. (2011) argue that unconventional ECB actions improved the Eurozone interbank lending and boosted industrial production. ...
The global financial crisis of 2007 changed the way central banks implement monetary policies. This article examines the transmission of both conventional and unconventional monetary policies for the Eurozone, the U.S., the U.K. and Japan. We additionally study the impact of quantitative easing on financial stability and real economic activity. Our results suggest that conventional monetary policy pass-through channels were distorted significantly in the post-crisis period. We further argue that quantitative easing reduced the long-term rates and averted a further downturn in economic activity. Specifically, the series of central banks quantitative easing contributed to the stimulation of economic activity and restored the traditional financial markets’ function.
... Kozicki, Santor, andSuchanek (2011) or Stone, Fujita, andIshi (2011) provide reviews for the USA and UK. Regarding the euro area, many studies focus on the impact of ECB policy on macroeconomic variables such as monetary aggregates, credit volumes, inflation, or output (see Giannone et al., 2011;De Pooter, Martin, and Pruitt, 2012). Only few papers concentrate on credit risks. ...
The paper analyses the empirical relationship between bank credit risk and sovereign credit risk in the euro area, using a system of simultaneous equations identified through heteroskedasticity. We first confirm a two-way causality between both risks, which amplifies initial credit risk shocks. We also document significant credit risk spillovers between sovereigns and banks in the periphery and the core countries. The paper then focuses on the impact of ECB non-standard monetary policy and bank bailout policies. We show that bailouts have reduced both risks. Monetary policy lowered in most but not all cases bank and sovereign risk.
... During the second phase of the crisis (fall of 2008 -spring of 2010), especially after the bankruptcy of Lehman Brothers in September 2008, significant disorder on the Eurosystem money market occurred, which imposed the need for more active participation of the ECB in providing support of liquidity to the threatened banking sector. With this aim, in the middle of October 2008, the ECB started using a fixed rate tender procedure with full allotment, within which it provided access for qualified financial institutions in the Eurozone to liquid funds in the desired amount at a fixed interest rate in the form of tender or bilateral procedure (Giannone, et al., 2011). Besides that, the ECB provided arrangements with longer-term maturity and with extension of collateral eligibility. ...
After multiple decreases in the reference interest rate and its reaching zero bounds in certain countries during the recent global financial crisis, central banks in developed countries have started applying non-standard measures of monetary policy. This does not refer to introducing new monetary policy instruments, but rather to a certain relativisation within the framework of standard instruments, in terms of maturity of liquidity provision, collateral policy and counterparties. Therefore, the aim of this paper is to examine the role of non-standard measures of monetary policy as a mechanism for overcoming problems in the implementation of the neoliberal concept of monetary policy in the conditions of the financial crisis. The answer to this question is rather sensitive, considering the fact that the neoliberal concept was supported by the most developed countries, that is, in fact, their central banks were using non-standard instruments of monetary policy for the greatest part.
