Discussion Paper Details

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Title: Monetary policy in exceptional times

Author(s): Michele Lenza, Huw Pill and Lucrezia Reichlin

Publication Date: January 2010

Keyword(s): monetary policy and quantitative easing

Programme Area(s): International Macroeconomics

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.

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Bibliographic Reference

Lenza, M, Pill, H and Reichlin, L. 2010. 'Monetary policy in exceptional times'. London, Centre for Economic Policy Research.