Unintended Consequences of ECB Policies

In Annette Godart-van der Kroon, and Patrik Volanthen (Eds.) Banking and Monetary Policy from the Perspective of Austrian Economics. Springer (2017)

35 Pages Posted: 14 Jan 2017 Last revised: 25 Apr 2019

See all articles by Andreas Hoffmann

Andreas Hoffmann

Leipzig University

Nicolas Cachanosky

Metropolitan State University of Denver; American Institute for Economic Research

Date Written: July 12, 2017

Abstract

We revisit the unintended consequences of the European Central Bank’s (ECB) low-interest rate policies with a focus on the periphery countries of the European Union (EU) since the 2000s from a modern Austrian perspective. We argue that convergence expectations and the ECB’s expansionary monetary policy were conducive to credit booms that turned bust in 2007/8. The subsequent European debt crisis revealed that the money-induced credit boom also incentivized governments to increase borrowing at relatively low rates. Second, we shed some light on adverse effects of the ECB crisis management thru an Austrian lens. We suggest that ECB policies were not successful in stimulating bank lending and investment. The main beneficiaries of holding rates at low levels are governments, who use the financial leeway to delay painful reforms. Consequently, ECB policy has (unintentionally) slowed down the recovery in the crisis economies and worsened Europe’s growth prospects since 2009.

Keywords: monetary policy, Europe, Austrian, crisis

JEL Classification: G01, B53, E58

Suggested Citation

Hoffmann, Andreas and Cachanosky, Nicolas, Unintended Consequences of ECB Policies (July 12, 2017). In Annette Godart-van der Kroon, and Patrik Volanthen (Eds.) Banking and Monetary Policy from the Perspective of Austrian Economics. Springer (2017). Available at SSRN: https://ssrn.com/abstract=2898276 or http://dx.doi.org/10.2139/ssrn.2898276

Andreas Hoffmann (Contact Author)

Leipzig University ( email )

Institute for Economic Policy
Grimmaische Str. 12
Leipzig, 04109
Germany

HOME PAGE: http://www.a-hoffmann.info

Nicolas Cachanosky

Metropolitan State University of Denver ( email )

Student Success Building
890 Auraria Pkwy #310
Denver, CO 80217
United States

HOME PAGE: http://www.ncachanosky.edu

American Institute for Economic Research

PO Box 1000
Great Barrington, MA 01230
United States

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