Euro system monetary policy since 2008
Yves Doazan: yves.doazan[at]univ-amu.fr
A public meeting in English by Seppo Honkapohja, economist, professor at Aalto University School of Business, Helsinki, member of the executive board of the European Central Bank (until 2017).
The Eurosystem will be 20-years old at the end of this year. The common monetary policy was initiated in January 1999. The last eleven years were a huge challenge for the eurosystem as all western market economies experienced a financial crisis. This crisis also led to the Great Recession of the Eurozone member countries. My lecture gives a detailed overview of eurosystem monetary policies with focus on the period from the financial crisis (2008) to the present.
The financial crisis and the Great Recession necessitated extraordinary policy responses which had to be tuned as the crisis evolved. Interest rates were made very low in 2008-9 and various non-standard (or unconventional) monetary policies were introduced. Policies for liquidity provision and refinancing of banks began in 2008 and they have continued to the present. Outright monetary transactions were introduced in 2012 and large-scale asset purchase programs started in 2014-15. Forward guidance about future policy intentions began in 2013. Negative policy interest rates were adopted in 2014. The lecture describes and discusses these policy operations.
Monetary policy transmission is discussed in the latter part of the lecture. I first look at the impact of the policies on the financial system during the easing cycle: (i) Impact on interest rates on new business and household loans, sovereign bond yields and corporate bond yields and (ii) impact on corporate and household loans stocks. The focus is on both the aggregate developments as well as on developments in specific euro area countries. The impact on the real economy with focus on the dynamics of inflation is also analyzed.
Economic growth is the second major area in looking at the real-economy impacts of monetary policy. Here the longer-term impact of unconventional monetary policies largely comes about through productivity and real interest rates. I take a somewhat broader, international viewpoint and conclude by taking up the challenge from low real interest to monetary policies.
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