Euro Area Policies: Selected Issues

International Monetary Fund

No 2023/265, IMF Staff Country Reports from International Monetary Fund

Abstract: This Selected Issues paper highlights quantitative tightening (QT) by the European Central Bank (ECB). It uses evidence from the literature on the impact of central bank bond purchases and sales on bond yields, and the monetary policy stance, to outline a roadmap for reducing the Euro system’s bond holdings. The current tightening cycle provides an opportunity to revisit the ECB’s balance sheet policy. With inflation running above target, the monetary accommodation provided by the ECB’s bond holding is no longer necessary. The current tightening cycle provides an opportunity to revisit the ECB’s balance sheet policy. With inflation running above target, the monetary accommodation provided by the ECB’s bond holding is no longer necessary. The paper concludes that the ECB’s short term policy rates should be the main choice for adapting the monetary policy stance to changing circumstances and QT should proceed in a gradual, predictable manner as outlined by the ECB.

Keywords: ECB Policy rate; ECB balance sheet; app portfolio; C. Policy consideration; bond supply net of ECB; Financial statements; Unconventional monetary policies; Central bank policy rate; Monetary stance; Securities (search for similar items in EconPapers)
Pages: 18
Date: 2023-07-19
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