Design and sequencing of exit from non-standard monetary policy measures: What should the ECB “new normal” look like?

15-11-2017

This paper discusses 1) the design and sequencing of exiting from unconventional monetary policy measures, which the ECB has undertaken to achieve price stability and support the euro area economy and 2) the new normal—namely, how the future operational framework of the ECB should look and to what extent it will resemble the pre-crisis state of affairs. We argue that the exit from unconventional measures should be gradual and accompanied by transparent communication, and that the exit should precede interest rate hikes. The new normal for the ECB is likely to be different from what we know from pre-crisis times (prior to 2008). It is likely to be characterised by the continuation of an extended balance sheet, more active communication measures towards the public, and a greater emphasis on financial stability issues.

This paper discusses 1) the design and sequencing of exiting from unconventional monetary policy measures, which the ECB has undertaken to achieve price stability and support the euro area economy and 2) the new normal—namely, how the future operational framework of the ECB should look and to what extent it will resemble the pre-crisis state of affairs. We argue that the exit from unconventional measures should be gradual and accompanied by transparent communication, and that the exit should precede interest rate hikes. The new normal for the ECB is likely to be different from what we know from pre-crisis times (prior to 2008). It is likely to be characterised by the continuation of an extended balance sheet, more active communication measures towards the public, and a greater emphasis on financial stability issues.