The ‘visible hand’ of the ECB’s quantitative easing

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In the midst of the market turbulence of recent years, policy rates have reached the zero lower bound, with central banks aggressively deploying their balance sheet with an array of ‘unconventional’ monetary policies to ensure the transmission of monetary policy impulses in disrupted financial markets and ultimately to set the conditions for economic recovery. Since March 9th, the European Central Bank (ECB) has also joined the club of central banks deploying the most feared monetary policy tool in its armoury. Unsterilised outright asset purchases (so-called ‘quantitative easing’ or QE) aim at reestablishing control over the transmission of monetary policy impulse via policy rates by ultimately improving conditions for unsecured interbank market activity. Using an extensive data analysis, this paper examines three dimensions of quantitative easing in Europe:

i) the rationale behind the ECB’s new monetary policy stance,

ii) the operational challenges of QE and

iii) preliminary evidence on the effects of QE on markets.