Effectiveness and Transmission of the ECB's Balance Sheet Policies

Abstract

We estimate the effects of exogenous innovations to the balance sheet of the ECB since the start of the financial crisis within a structural VAR framework. An expansionary balance sheet shock stimulates bank lending, reduces interest rate spreads, leads to a depreciation of the euro, and has a positive impact on economic activity and inflation. A counterfactual analysis reveals that the macroeconomic consequences of the balance sheet policies in the aftermath of the crisis have been substantial. For example, euro-area output and inflation would have been more than 1 percent lower in 2012 without the threeyear LTRO programs. Finally, we find that the effects on output turn out to be smaller in the member countries that have been more affected by the financial crisis, in particular those countries where the banking system is less well capitalized.

The impact of size, composition and duration of the central bank balance sheet on inflation expectations and market prices

“…Shocks to size or duration are followed by a depreciation of the euro exchange rate, in line with existing literature (e.g. Boeckx, Dossche, and Peersman 2017;Gambetti and Musso 2017). As duration is the weighted average maturity, the specification in row ii., column C speaks for the effectiveness of duration extraction by changing the portfolio while leaving the size constant, e.g.…”

Heterogeneous Effects of Unconventional Monetary Policy on Loan Demand and Supply. Insights from the Bank Lending Survey

“…Thereby capturing all actions taken by the ECB such as the longer-term refinancing operations and the covered bond purchase program. Boeckx et al (2017) conclude that an expanding balance sheet has a positive effect on GDP growth, prices and lending.…”

“…The author argues that stricter bank regulation, in terms of bank capitalization and stable funding base, has a positive effect on the transmission of monetary policy through the bank lending channel. The last paper to mention is from Boeckx, Dossche, and Peersman (2017). The authors also use the BLS to identify demand and supply of loans, but do not model a pure monetary policy shock and instead construct a balance sheet shock.…”

Untitled

“…Another often-implemented approach is structural VAR (SVAR), which imposes some restrictions on the short and/or long-term interactions between economic variables. This can be based on stylized facts or on economic theory (see Boeckx, Dossche and Peersman, 2014). This is especially true for the analysis of monetary transmission mechanism (Christiano, Eichenbaum and Evans, 1999;Van Aarle, Garretsen and Gobbin, 2003).…”