Exit Strategies and Their Impact on the Euro Area - A Model Based View

Ansgar Belke

No 467, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: This paper comments on the pros and cons of exit strategies. The focus is on the impact on the Euro area economy of the exit from unconventional monetary policies (UMP) by the Fed, which appears to be the first central bank to lay out an exiting path. In this context, it discusses the issue of policy coordination between central banks in the light of the substantial potential spillover effects via capital flows and exchange rate adjustments of unconventional monetary policies. The risks of a premature versus a delayed exit are assessed. In particular, the paper looks at the risk associated to spillover effects from UMP exit and the different shapes of exit paths. It also analyses exit strategies in a wider context and the associated financial stability risks, with a specific focus on the role of uncertainty. The paper presents estimates of the impact of the Fed's exit from UMP in 2014 on the Euro area economy using new and innovative global IMF models. Finally, specific policy options to minimize exit risks are discussed and compared.

Keywords: federal funds rate; exit strategies; global spillovers; international policy coordination; sudden stop (search for similar items in EconPapers)
JEL-codes: E58 G01 G12 H12 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Working Paper: Exit Strategies and Their Impact on the Euro Area – A Model Based View (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:467

DOI: 10.4419/86788527

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