Monetary Policy in Exceptional Times

45 Pages Posted: 5 Apr 2010

See all articles by Michele Lenza

Michele Lenza

European Central Bank (ECB)

Huw R. Pill

Harvard University - Business, Government and the International Economy Unit

Lucrezia Reichlin

London Business School; Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Centre for Economic Policy Research (CEPR); European Central Bank (ECB)

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Abstract

This paper describes the way in which the European Central Bank (ECB), the Federal Reserve and the Bank of England conducted monetary policy since the beginning of the financial crisis in August 2007. We argue that both quantitative easing -- and the other non-standard measures introduced by central banks that changed the composition of the asset side of their balance sheets (so-called ‘qualitative easing’) -- acted mainly through their effects on interest rates and, in particular, on money market spreads, rather than solely through ‘quantity effects’ in terms of the money supply. We perform a quantitative exercise on the euro area which estimates the effect of the reduction of these spreads to the broader economy.

Suggested Citation

Lenza, Michele and Pill, Huw R. and Reichlin, Lucrezia, Monetary Policy in Exceptional Times. Economic Policy, Vol. 25, Issue 62, pp. 295-339, April 2010. Available at SSRN: https://ssrn.com/abstract=1583154 or http://dx.doi.org/10.1111/j.1468-0327.2010.00240.x

Michele Lenza (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Huw R. Pill

Harvard University - Business, Government and the International Economy Unit ( email )

Cambridge, MA
United States
617-495-6788 (Phone)
617-496-5994 (Fax)

HOME PAGE: http://www.people.hbs.edu/hpill

Lucrezia Reichlin

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
+32 2 650 4221 (Phone)
+32 2 650 4475 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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