Euro Area Monetary Policy in Uncharted Waters

35 Pages Posted: 17 Sep 2009

See all articles by Emil Stavrev

Emil Stavrev

International Monetary Fund (IMF)

Martin Čihák

International Monetary Fund (IMF)

Thomas Harjes

International Monetary Fund (IMF)

Date Written: August 2009

Abstract

We analyze the European Central Bank's (ECB's) response to the global financial crisis. Our results suggest that even during the crisis, the core part of ECB's monetary policy transmission-from policy rates to market rates-has continued to operate, but at a decreased efficiency. We also find some evidence that the ECB's non-standard measures, namely the lengthening of the maturity of monetary policy operations and the provision of funds at the fixed rate, reduced money market term spreads, facilitating the pass-through from policy to market rates. Furthermore, the results imply that the substantial increase in the ECB's balance sheet may have contributed to a reduction in government bond term spreads.

Keywords: Central bank policy, Deflation, Economic models, European Monetary System, European Union, Financial crisis, Inflation, Liquidity controls, Monetary policy, Monetary transmission mechanism

Suggested Citation

Stavrev, Emil and Cihak, Martin and Harjes, Thomas, Euro Area Monetary Policy in Uncharted Waters (August 2009). IMF Working Papers, Vol. , pp. 1-34, 2009. Available at SSRN: https://ssrn.com/abstract=1474593

Emil Stavrev (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Martin Cihak

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Thomas Harjes

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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