Beurteilung der Wirksamkeit und mögliche Risiken der aktuellen Geldpolitik des Eurosystems. Assessment of effectiveness and potential risks of the Eurosystems recent monetary policy.

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Series Details Vol.23, No.2, 2015
Publication Date 2015
ISSN 2228-1878
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Recent monetary policy of the Eurosystem has been taken a more and more softer line of monetary policy accommodation in the last few years to overcome a sharp drop in economic activities within the member countries of the Euro currency area. This sharp drop in economic activities has been following both the international financial and economic crisis since 2008 as well as the European debt crisis since 2010. Declared intention of the Governing Council of the Eurosystem to ease the monetary policy stance more broadly by implementing several non-conventional monetary policy measures is to stimulate credit expansion rates of the monetary financial institutions (MFIs) as well as to push up actually low inflation rates in line with an expansion of economic activity within the member countries of the Eurozone to secure its primary objective. This primary objective of the ECB is to be valid, if inflation rates could be maintained below, but close to 2% in medium terms, which was not the case in the last two years, when inflation rates amounted to 1,3% in 2013 and 0.4% in 2014, and will be expected to be 0.3% in 2015. So it has to be discussed if the implemented non-conventional monetary policy measures are suitable measures to force credit business as well as to give enough upward pressure to commodity prices within the Eurozone countries.
To assess effectiveness of non-conventional monetary policy measures one first has to take a look on the conventional monetary policy measures to see if non-conventional monetary policy measures are a suitable supplement. There exist two navigation or steering instruments for conventional monetary policy. One is the key interest rate, which reflects the costs of obtaining central bank money by the MFIs whenever they use the refinancing operations of the ECB. The other instrument is the quantity of central bank money allotted by the ECB. In this respect the actual situation within the Eurosystem can be characterized in short by free and unlimited allotment of central cank money. So if obviously there exists no shortage of central bank money within the Eurosystems banking system, the question has to be answered what kind of supplemented help for the monetary policy of the ECB can be expected by using non-conventional monetary policy measures. In the cases of outright purchases of sovereign bonds, or more general in the case of quantitative easing (QE), which, beside its intended influences on long term interest rates, especially are directed to allot additional central bank money to the banking system, the question has to be raised why such additional allotment of central bank money should be helpful to make monetary policy more effective. The same is true for the non-conventional measure of the so called targeted longer-term refinancing operations (TLTRO), because the intention of that monetary policy instrument too is to allot additional central bank money to the banking system.
In addition it seems to be very doubtful if there will be great success in reducing long-term interest rates in the member countries of the Euro area by using quantitative easing (QE). Beside the allotment of additional central bank money the second intention of QE is to drop long-term interest rates within the segments of the capital markets where the central bank is buying bonds. But at the background of historical very low interest rate levels within the member countries of the Euro area ( except Greek, which is a special case) already at the time, when the ECB started with QE in March 2015, there is no great chance of additional and significant drops of interest rates by using QE. In this respect there exists a substantial difference to the situation in the USA, where assessing of QE is very positive, because of very much higher interest rates at the starting point of implementing QE, which then could have been dropped significantly.
In the article there are discussed two other aspects too, which prove that the conditions of using QE are quite different in the USA than in the Euro area. First point is that the financial behaviour of US-enterprises is mainly market based, while it is dominantly bank based for EU-enterprises. So if investment finance is needed changing interest rates on bond markets by QE are less important for European enterprises than for US-enterprises. Second point is that allotment of central bank money by the Federal Reserve System will be enforced already by outright purchases of bonds, i. e. by non-reversed transactions and thus in the same way as QE is to be enforced, while allotment of central bank money by the Eurosystem in normal times will be enforced quite different by reversed transactions. So QE is a fundamental change of system in the liquidity-providing process of the ECB. And by using QE the ECB threatens its existing advantage of an automatic liquidity-absorbing mechanism, which is involved in the process of reversed transactions.
Furthermore different risks of very low interest rate levels are discussed in this article. In this context a critical view will be thrown on the role of forward guidance as another non-conventional monetary policy measure used by central banks to ensure low interest rate levels for an extended period of time. In the whole it will be shown that especially in the case of the ECB there exist no convincing reasons to use non-conventional measures in such a intensity and for such a long time to increase effectiveness of monetary policy. So other intentions of using non-conventional measures are discussed here, which have to be put in order outside the narrow sphere, that is associated with monetary policy. For example to aspire to risk transfers from the balance sheet of commercial banks to the balance sheet of the ECB by outright purchases of bonds, or to circumvent the legal ban to grant credits directly to the public sector by putting commercial banks to grant these credits and pass them to the ECB after a short time, or to force depreciation of the Euro foreign exchange rate, to improve economic situation within the member countries of the Euro currency area and to force imported inflation.

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