DP7669 Monetary policy in exceptional times
|Author(s):||Michele Lenza, Huw Pill, Lucrezia Reichlin|
|Publication Date:||January 2010|
|Keyword(s):||monetary policy, quantitative easing|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=7669|
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.