Unconventional Monetary Policy in the USA and in Europe

  • Guerini MattiaEmail author
  • Lamperti Francesco
  • Mazzocchetti Andrea


Central banks reacted to the financial crisis through sets of unconventional monetary policies that encompass the use of market operations, forward guidance and negative interest rates. We discuss the phenomena that have characterized balance sheet-based policies in the USA and in the EU, and we relate the effects of these policies to the financial stability objective. Our interpretation of the available empirical evidence is that QE lowered long-term yields and eased credit conditions, but had only mild effects on macroeconomic fundamentals. Also, the recent tapering process might lead to potentially dangerous contingencies. Among them, we discuss the portfolio reallocation toward riskier stocks, the possibility of asset prices bubbles, a lower central bank independence and a reduced distance between monetary and fiscal policies.


  1. Adrian, T., & Shin, H. S. (2010). The Changing Nature of Financial Intermediation and the Financial Crisis of 2007–2009. Annual Review of Economics, 2(1), 603–618.CrossRefGoogle Scholar
  2. Akerlof, G. (1970). The Market for “Lemons”: Quality Uncertainty and the Market Mechanism. The Quarterly Journal of Economics, 84(3), 488–500.CrossRefGoogle Scholar
  3. Alesina A., & Summers L. (1993). Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence. Journal of Money Credit and Banking, 25(2), 151–162.Google Scholar
  4. Allen, F., & Gale, D. (2000). Financial Contagion. Journal of Political Economy, 108(1), 1–33.CrossRefGoogle Scholar
  5. Altavilla, C., Giannone, D., & Lenza, M. (2016, September). The Financial and Macroeconomic Effects of the OMT Announcements. International Journal of Central Banking.Google Scholar
  6. Andrade, P., Breckenfelder, J., De Fiore, F., Karadi, P., Tristani, O. (2016). The ECB’s Asset Purchase Programme: An Early Assessment (ECB Working Paper Series, No. 1956).Google Scholar
  7. Barucca, P., Bardoscia, M., Caccioli, F., D’Errico, M., Visentin, G., Battiston, S., & Caldarelli, G. (2016). Network Valuation in Financial Systems. Available at SSRN.Google Scholar
  8. Barigozzi, M., Conti, A. M., Luciani, M. (2014). Do Euro Area Countries Respond Asymmetrically to the Common Monetary Policy? Oxford Bulletin of Economics and Statistics, 76(5), 693–714.CrossRefGoogle Scholar
  9. Battiston, S., & Martinez-Jaramillo, S. (2018). Financial Networks and Stress Testing: Challenges and New Research Avenues for Systemic Risk Analysis and Financial Stability Implications. Journal of Financial Stability, 35, 6–16.CrossRefGoogle Scholar
  10. Bernanke, B. S. (2009). Reflections on a Year of Crisis. In Speech at the Federal Reserve Bank of Kansas City’s Annual Economic Symposium, Jackson Hole. Wyoming.Google Scholar
  11. Bernanke, B. S. (2010). Opening Remarks: The Economic Outlook and Monetary Policy. In Proceedings-Economic Policy Symposium-Jackson Hole (pp. 1–16). Federal Reserve Bank of Kansas City.Google Scholar
  12. Bernanke, B., & Gertler, M. (1990). Financial Fragility and Economic Performance. The Quarterly Journal of Economics, 105(1), 87–114.CrossRefGoogle Scholar
  13. Blot, C., Creel, J., Hubert, P., Labondance, F., & Ragot, X. (2017). Financial Stability and the ECB Sciences Po publications.Google Scholar
  14. Bordo, M., Eichengreen, B., Klingebiel, D., & Marinez-Peria, M. S. (2001). Is the Crisis Problem Growing More Severe? Economic Policy, 32, 53–75.Google Scholar
  15. Borio, C., & Drehmann, M. (2009). Assessing the Risk of Banking Crises—Revisited. Bank of International Settlements: BIS quarterly review.Google Scholar
  16. Borio, C., & White, W. (2004). Whither Monetary and Financial Stability? The Implications of Evolving Policy Regimes. BIS Working Paper Series, no. 147.Google Scholar
  17. Borio, C., & Zabai, A. (2016). Unconventional Monetary Policies: A Re-appraisal (BIS Working Paper Series, No. 570).Google Scholar
  18. Caballero, R., & Farhi, E. (2017). The Safety Trap. The Review of Economic Studies, 85(1), 223–274.Google Scholar
  19. Caldentey, E. P. (2017). Quantitative Easing (QE), Changes in Global Liquidity, and Financial Instability. International Journal of Political Economy, 46(2), 91–112.CrossRefGoogle Scholar
  20. Cincotti, S., Raberto, M., & Teglio, A. (2010). Credit Money and Macroeconomic Instability in the Agent-Based Model and Simulator Eurace. Economics: The Open-Access Open-Assessment E-Journal, 4(26), 1–32.Google Scholar
  21. Clouse, J., Henderson, D., Orphanides, A., Small, D. H., & Tinsley, P. A. (2003). Monetary Policy When the Nominal Short-Term Interest Rate Is Zero. The B.E. Journal of Macroeconomics, 3(1), 1–65.Google Scholar
  22. De Santis, R. A. (2016). Impact of the Asset Purchase Programme on Euro Area Government Bond Yields Using Market News (ECB Working Paper Series, No. 1939).Google Scholar
  23. Dell’Ariccia, G., Rabanal, P., & Sandri, D. (2018). Unconventional Monetary Policies in the Euro Area, Japan, and the United Kingdom. Journal of Economic Perspectives, 32(4), 147–172.CrossRefGoogle Scholar
  24. Demerzis, M., & Wolff, G. B. (2016). What Impact Does the ECB’s Quantitative Easing Policy Have on Bank Profitability? (Bruegel Policy Contribution, No. 20).Google Scholar
  25. Diamond, D. W., & Dybvig, P. H. (1983). Bank Runs, Deposit Insurance, and Liquidity. Journal of Political Economy, 91(3), 401–419.CrossRefGoogle Scholar
  26. Di Maggio, M., & Kacperczyk, M. (2017). The Unintended Consequences of the Zero Lower Bound Policy. Journal of Financial Economics, 123(1), 59–80.CrossRefGoogle Scholar
  27. Di Maggio, M., Kermani, A., & Palmer, C. (2016). How Quantitative Easing Works: Evidence on the Refinancing Channel (National Bureau of Economic Research Working Papers, No. 22638).Google Scholar
  28. Falagiarda, M., & Reitz, S. (2015). Announcements of ECB Unconventional Programs: Implications for the Sovereign Spreads of Stressed Euro Area Countries. Journal of International Money and Finance, 53, 276–295.CrossRefGoogle Scholar
  29. Fisher, I. (1933). The Debt-Deflation Theory of Great Depressions. Econometrica, 1, 337–357.CrossRefGoogle Scholar
  30. Fratzscher, M., Lo Duca, M., & Straub, R. (2016). ECB Unconventional Monetary Policy: Market Impact and International Spillovers. IMF Economic Review, 64(1), 36–74.Google Scholar
  31. Fratzscher, M., Lo, Duca M., & Straub, R. (2018). On the International Spillovers of US Quantitative Easing. The Economic Journal, 128(608), 330–367.CrossRefGoogle Scholar
  32. Freixas, X., Parigi, B. M., & Rochet, J. C. (2000). Systemic Risk, Interbank Relations, and Liquidity Provision by the Central Bank. Journal of Money, Credit and Banking, 32(3), 611–638.CrossRefGoogle Scholar
  33. Gaffard, J.-L. (2018). Le débat de théorie et de politique monétaires revisité (Sciences Po OFCE Working Paper, No. 39).Google Scholar
  34. Gagnon, J., Raskin, M., Remache, J., & Sack, B. (2011). The Financial Market Effects of the Federal Reserve’s Large-Scale Asset Purchases. International Journal of central Banking, 7(1), 3–43.Google Scholar
  35. Gambacorta, L., Hofmann, B., Peersman, G. (2014). The Effectiveness of Unconventional Monetary Policy at the Zero Lower Bound: A Cross‐Country Analysis. Journal of Money, Credit and Banking, 46(4), 615–642.CrossRefGoogle Scholar
  36. Guerini, M., Lamperti, F., & Mazzocchetti, A. (2018). Unconventional Monetary Policy: Between the Past and Future of Monetary Economics. European Journal of Economics and Economic Policy, 15(2), 122–131.Google Scholar
  37. Gurley, J., & Shaw, E. (1955). Financial Aspects of Economic Development. The American Economic, 45(4), 515–538.Google Scholar
  38. Haldane, A. G. (2013). Rethinking the Financial Network. In S. A. Jansen, E. Schörter, & N. Stehr (Eds.), Fragile Stabilität - stabile Fragilität (pp. 243–278).Wiesbaden: Springer Fachmedien Wiesbaden.Google Scholar
  39. Ihrig, J., Klee, E., Li, C., Schulte, B., & Wei, M. (2018, March). Expectations About the Federal Reserve’s Balance Sheet and the Term Structure of Interest Rates. International Journal of Central Banking.Google Scholar
  40. Koijen, R. S., Koulisher, F., Nguyen, B., & Yogo, M. (2018). Quantitative Easing in the Euro Area: The Dynamics of Risk Exposures and the Impact on Asset Price (Bank de France Working Papers, Revised wp. 601).Google Scholar
  41. Krishnamurthy, A., & Vissing-Jorgensen, A. (2011). The Effects of Quantitative Easing on Long-Term Interest Rates: Channels and Implication for Policies. Brookings Papers on Economic Activity, 2, 215–265.CrossRefGoogle Scholar
  42. Krishnamurthy, A., & Vissing-Jorgensen, A. (2013). The Ins and Outs of LSAPs, in: Kansas City Federal Reserve Symposium on Global Dimensions of Unconventional Monetary Policy (pp. 57–111).Google Scholar
  43. Lo, A. (2017). Adaptive Markets: Financial Evolution at the Speed of Thought. Princeton and Oxford: Princeton University Press.Google Scholar
  44. Lombardi, D., Siklos, P., & St. Amand, S. (2018). A Survey of the International Evidence and Lessons Learned About Unconventional Monetary Policies: Is a ‘New Normal’ in Our Future? Journal of Economic Surveys, 32(5), 1229–1256.Google Scholar
  45. Mishra, P., Moriyama, K., & N’Diaye, P. (2014). Impact of Fed Tapering Announcements on Emerging Markets (IMF Working Paper No. 14/109).Google Scholar
  46. Minsky, H. (1973). The Financial Instability Hypothesis: An Alternative View (Hyman P. Minsky Archive. Paper No. 355).Google Scholar
  47. Minsky, H. (1986). Stabilizing an Unstable Economy: A Twentieth Century Fund Report. New Haven, CT and London: Yale University Press.Google Scholar
  48. Neely, C. J. (2010). The Large Scale Asset Purchases Had Large International Effects. Research Division: Federal Reserve Bank of St. Louis.CrossRefGoogle Scholar
  49. Peersman, G. (2011). Macroeconomic Effects of Unconventional Monetary Policy in the Euro Area (ECB Working Paper Series, No. 1397).Google Scholar
  50. Pozsar, Z., Adrian, T., Ashcraft, A. B., & Boesky, H. (2010). Shadow Banking (Federal Reserve Bank of New York Staff Reports, No. 458).Google Scholar
  51. Swanson, E. T. (2017). Measuring the Effects of Federal Reserve Forward Guidance and Asset Purchases on Financial Markets (NBER Working Papers, No. 23311).Google Scholar
  52. Stiglitz, J., & Weiss, A. (1981). Credit Rationing in Markets with Imperfect Information. American Economic Review, 71(3), 393–410.Google Scholar
  53. Yu, E. (2016). Did Quantitative Easing Work? Economic Insights, 1(1), 5–13.Google Scholar

Copyright information

© The Author(s) 2019

Authors and Affiliations

  • Guerini Mattia
    • 1
    • 2
    • 3
    Email author
  • Lamperti Francesco
    • 3
    • 4
  • Mazzocchetti Andrea
    • 5
  1. 1.Université Côte d’Azur – GREDEGValbonneFrance
  2. 2.OFCE – SciencesPoParisFrance
  3. 3.Sant’Anna School of Advanced StudiesPisaItaly
  4. 4.European Institute of Economics and the EnvironmentMilanItaly
  5. 5.University of GenovaGenovaItaly

Personalised recommendations