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Policy Contribution

European Central Bank quantitative easing: the detailed manual

This Policy Contribution examines the detail of how quantitative easing will actually take place in the euro area and its implications, following the European Central Bank's announcement in January 2015 of a massive expansion of its asset purchase programme. 

By: , and Date: March 11, 2015 Topic: European Macroeconomics & Governance

  • The European quantitative easing programme, the Public Sector Purchase Programme (PSPP), started on 9 March 2015 and will last at least until September 2016. Purchases will be composed of sovereign bonds and securities from European institutions and national agencies.
  • The European Central Bank Governing Council imposed limits to ensure that the Eurosystem will not breach the prohibition on monetary financing. However, these limits will constrain the size and duration of the programme, especially if it is sustained after September 2016. The possibility for national central banks to also buy national agency securities could alleviate this, but the small number of eligible agencies could limit their role as a back-up purchase.
  • The Eurosystem should find other eligible agencies, especially in countries in which public debt is small, or waive the limits for countries respecting the investment grade eligibility criteria. The same issue arises with European institutions: their number and outstanding debt securities are limited. The waiver of the limits proposed for sovereigns should be applied to institutions with high ratings.
  • The PSPP profits that will ultimately be repatriated to national treasuries will be small. This was to be expected, given current very low yields. Profits will also come from the major increase in reserves resulting from the implementation of QE, combined with the negative deposit rates on excess reserves at the ECB.
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Podcast

Podcast

Backstage: Japan’s inflation problem and monetary policy options

Bruegel senior fellow Zsolt Darvas welcomes Sayuri Shirai, professor at Keio University, visiting scholar at the Asian Development Bank Institute and former Member of the Policy Board of the Bank of Japan (BOJ), for a discussion of the Japanese monetary policy outlook. 

By: The Sound of Economics Topic: Global Economics & Governance Date: October 26, 2018
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Policy Contribution

European Parliament

Excess liquidity and bank lending risks in the euro area

In this Policy Contribution prepared for the European Parliament’s Committee on Economic and Monetary Affairs (ECON) as an input to the Monetary Dialogue, the authors clarify what excess liquidity is and argue that it is not a good indicator of whether banks’ have more incentives in risk-taking and look at indicators that might signal that bank lending in the euro area creates undue risks.

By: Zsolt Darvas and David Pichler Topic: European Macroeconomics & Governance, European Parliament, Testimonies Date: September 26, 2018
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Blog Post

Monetary policy and superstar firms

The yearly Jackson Hole gathering of central bankers has focused this year on the topic of changing market structure, the rise of superstar firms, and the implications of the way they compete for central banks.

By: Silvia Merler Topic: Global Economics & Governance Date: September 4, 2018
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Policy Contribution

Should we care about central bank profits?

The authors investigate the ECB’s profit-making activity of the last 20 years, assessing how this was achieved and the reasons why we should care more broadly about central banks generating profits.

By: Francesco Chiacchio, Grégory Claeys and Francesco Papadia Topic: European Macroeconomics & Governance Date: August 30, 2018
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Opinion

The ECB is compromising the attractiveness of euro-area sovereign bonds

The ECB should refine its collateral framework in order to continue protecting its balance sheet without putting at risk the safe-asset status of sovereign bonds of the euro area.

By: Grégory Claeys and Inês Goncalves Raposo Topic: Finance & Financial Regulation Date: August 29, 2018
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Blog Post

Criteria for entry into the ERMII and the banking union: the precedent from Bulgaria

In its bid to join the single currency Bulgaria has made commitments on financial supervision but also wider structural reform which set a precedent for future applicants for participation in the exchange rate mechanism ERMII. Most conditions, though not all, are justified by the additional demands of the banking union. But the envisaged timeline seems ambitious, and verification will not be straightforward.

By: Alexander Lehmann Topic: European Macroeconomics & Governance Date: August 29, 2018
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Policy Contribution

European Parliament

Cryptocurrencies and monetary policy

Can cryptocurrencies acquire the role of money? And what are the implications for central banks and monetary policy? Read the policy contribution to understand what challenges cryptocurrencies have to overcome to replace official currencies.

By: Grégory Claeys, Maria Demertzis and Konstantinos Efstathiou Topic: European Parliament, Finance & Financial Regulation, Testimonies Date: June 28, 2018
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Blog Post

Is the ECB collateral framework compromising the safe-asset status of euro-area sovereign bonds?

Central banks’ collateral frameworks play an important role in defining what is considered as a safe asset. However, the ECB’s framework is unsatisfactory because it is overly reliant on pro-cyclical ratings from credit rating agencies, and because the differences in haircuts between the different ECB credit quality steps are not sufficiently gradual. In this note, the authors propose how the ECB could solve these problems and improve its collateral framework to protect its balance sheet without putting at risk the safe status of sovereign bonds of the euro area.

By: Grégory Claeys and Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: June 8, 2018
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Past Event

Past Event

News from the South. Proposal to strengthen the European Monetary Union: Combining fiscal discipline with risk sharing

On 4 June Bruegel, as in previous years, will host the presentation of the Euro Yearbook, a collection of experts’ insights on the construction of the European Monetary Union through 2017.

Speakers: Cristina Cabrera, Maria Demertzis, Fernando Fernandez, Massimo Giuliodori, Javier Méndez Llera and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 4, 2018
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External Publication

The changing fortunes of central banking

What are the major challenges of central banks today? This book discusses the developing role of central banks and the policies they pursue in seeking monetary and financial stabilisation, while also giving suggestions for model strategies.

By: Philipp Hartmann, Haizhou Huang and Dirk Schoenmaker Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: May 29, 2018
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Blog Post

Are SBBS really the safe asset the euro area is looking for?

The European Commission is pushing to create a synthetic euro-area-wide safe asset in the form of sovereign bond-backed securities (SBBS). However, SBBS do not fully fulfil their original promises. If introduced on a massive scale, they might increase the supply of safe assets in good times and loosen the link between sovereigns and banks. But they will not give governments a means to maintain market access during crises, they might change incentives for governments to default, and they could pose a problem to individual bonds not included in SBBS if, in the end, they are put at a regulatory advantage vis-à-vis individual bonds.

By: Grégory Claeys Topic: Finance & Financial Regulation Date: May 28, 2018
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External Publication

Central banking in turbulent times

Central banks came out of the Great Recession with increased power and responsibilities. Indeed, central banks are often now seen as 'the only game in town', and a place to put innumerable problems vastly exceeding their traditional remit. These new powers do not fit well, however, with the independence of central banks, remote from the democratic control of government.

By: Francesco Papadia and Tuomas Valimaki Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: May 22, 2018
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