Buying into new ideas: The ECB’s evolving justification of unlimited liquidity

Lea Steininger () and Casimir Hesse ()
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Lea Steininger: Department of Economics, Vienna University of Economics and Business; Vienna Institute for International Economic Studies
Casimir Hesse: Rothschild & Co.

Department of Economics Working Papers from Vienna University of Economics and Business, Department of Economics

Abstract: In 2012, Draghi put an end to rising euro area sovereign bond yield spreads by resolving to do 'whatever it takes'. The crisis rhetoric and institutional practices of unlimited liquidity have since become commonplace, as countermeasures to recent market turmoil show. This paper sets out to explain how and why 'unlimited liquidity' ideas moved to the ECB's center of economic analysis during the euro crisis. Previous work fails to decipher that the ideational shift was highly anomalous when viewed against German ordoliberalism or scholarly support for 'expansionary austerity'. Addressing this relative neglect in other accounts, we draw on qualitative text analysis and expert interviews to argue that this shift was due to norm entrepreneurs who capitalized on the uncertainty of the crisis. We employ constructivist arguments to identify four scoping conditions that account for the ascendance of 'unlimited liquidity': an indicative reference, credibility, institutional positioning, and -- as an extension to the literature -- intellectual sensitivity. Our analysis suggests that the euro crisis changed economic ideas, and fundamentally remodels the constructivist framework for studying monetary policy in crisis times.

Keywords: European Central Bank; euro crisis; monetary policy; unlimited liquidity; economic ideas; constructivism (search for similar items in EconPapers)
JEL-codes: E52 E58 F50 (search for similar items in EconPapers)
Date: 2024-03
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec and nep-mon
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