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The unconventional monetary policy of the European Central Bank: Effectiveness and transmission analysis

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  • Jose A. Zabala
  • Maria A. Prats
Abstract
Since the beginning of the financial crisis in summer 2007, the European Central Bank (ECB) has redirected traditional monetary policy, based on interest rates, to an unconventional monetary policy focused on the quantitative expansion of its balance sheet. In this context, the present paper aims to assess the effectiveness of unconventional monetary policy instruments with regard to inflation and economic growth. To this end, the methodology is based on the estimation of a structural vector autoregressive model for the period 2007:Q1–2018:Q4, using four variables: EONIA, the total amount of assets on the ECB's balance sheet, the Eurozone inflation rate and the Eurozone economic growth rate. The results show a slight impact of the different balance sheet policies on inflation and economic activity behaviour, especially during the last year of the financial crisis. The robustness of these results is supported by the estimation of the same model replacing EONIA rates with shadow rates. Therefore, the results support the existence of monetary transmission for the period during which the unconventional monetary policy was developed as well as the effectiveness of the monetary policy adopted by the ECB in its commitment to price stability.

Suggested Citation

  • Jose A. Zabala & Maria A. Prats, 2020. "The unconventional monetary policy of the European Central Bank: Effectiveness and transmission analysis," The World Economy, Wiley Blackwell, vol. 43(3), pages 794-809, March.
    • Handle: RePEc:bla:worlde:v:43:y:2020:i:3:p:794-809
    DOI: 10.1111/twec.12880
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    3. Sleibi, Yacoub & Casalin, Fabrizio & Fazio, Giorgio, 2023. "Unconventional monetary policies and credit co-movement in the Eurozone," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 85(C).
    4. Lara Greta MERLING & Alexandru VLADOI, 2022. "Fiscal consolidation and public debt in the European Union: Reevaluating the relationship," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(2(631), S), pages 39-48, Summer.
    5. Veronika Kajurová & Dagmar Vágnerová Linnertová, 2022. "The Nexus between Monetary Policy and Commercial Lending Rates: Comprehensive Evidence from Czechia during Different Policy Stances," Eastern European Economics, Taylor & Francis Journals, vol. 60(4), pages 330-351, July.

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