Working Paper: CEPR ID: DP7669
Authors: Michele Lenza; Huw Pill; Lucrezia Reichlin
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.
Keywords: Monetary Policy; Quantitative Easing
JEL Codes: E41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| quantitative easing (C54) | interest rates (E43) |
| qualitative easing (C54) | interest rates (E43) |
| interest rates (E43) | money market spreads (E43) |
| money market spreads (E43) | broader economy (F69) |
| quantitative easing (C54) | broader economy (F69) |
| qualitative easing (C54) | broader economy (F69) |
| interest rates (E43) | loans (H81) |
| interest rates (E43) | real economic activity (E39) |
| interest rates (E43) | inflation (E31) |