Macroeconomic effectiveness of non-standard monetary policy and early exit. A model-based evaluation

Lorenzo Burlon, Andrea Gerali (), Alessandro Notarpietro and Massimiliano Pisani

No 1074, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper evaluates the macroeconomic effects of the Eurosystem’s expanded Asset Purchase Programme (APP) under alternative strategies as regards (i) the unwinding of asset positions accumulated under the APP and (ii) communication of current and future paths of the policy rate (forward guidance). To this purpose, we simulate a New Keynesian model of the euro area. Our results are as follows. First, as the monetary authority brings forward the selling of long-term sovereign bonds, the stimulus from the APP on inflation and economic activity is correspondingly reduced. In particular, if the bonds are sold immediately after purchases end, the impact on inflation is negligible. Second, if the monetary authority communicates that it will hold the policy rate constant for one year instead of two, the APP is less effective, and the inflation increase is halved. Third, the subdued impact of the APP associated with an early exit from the programme delays the return to a standard monetary policy regime.

Keywords: DSGE models; open-economy macroeconomics; non-standard monetary policy; zero lower bound (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-cba, nep-dge, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Journal Article: Macroeconomic effectiveness of non-standard monetary policy and early exit. A model-based evaluation (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1074_16

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