The ECB’s Asset Purchase Programmes: Effectiveness, Risks, Alternatives

30-09-2020

We summarise the empirical evidence on effects of asset purchases in the euro area, including the PEPP programme launched in response to the COVID-19 crisis. We conclude that QE is particularly effective during times of high financial stress, i.e. at the peak of a crisis, but tends to lose impact over time. At the same time, QE policies come with prominent risks which may materialise only in the longer term. We suggest a scheme of rule-based intervention in sovereign debt markets that preserves the role of yield spreads as a market signal, while containing the risk of bad equilibria. This document was provided by Policy Department A at the request of the Committee on Economic and Monetary Affairs (ECON).

We summarise the empirical evidence on effects of asset purchases in the euro area, including the PEPP programme launched in response to the COVID-19 crisis. We conclude that QE is particularly effective during times of high financial stress, i.e. at the peak of a crisis, but tends to lose impact over time. At the same time, QE policies come with prominent risks which may materialise only in the longer term. We suggest a scheme of rule-based intervention in sovereign debt markets that preserves the role of yield spreads as a market signal, while containing the risk of bad equilibria. This document was provided by Policy Department A at the request of the Committee on Economic and Monetary Affairs (ECON).

Autore esterno

Joscha BECKMANN, Salomon FIEDLER, Klaus-Jürgen GERN, Stefan KOOTHS, Josefine QUAST, Maik WOLTERS