Report
Patrick Artus

Why the strange timing of the ECB’s monetary policy since the crisis?

A comparison between the actual euro repo rate and one that would result from a Taylor rule shows that the ECB should have: Used zero interest rates from 2013 to mid-2015 and not from the end of 2014 to the present; Implemented quantitative easing from 2013 to 2015 and not from 2015 to 2018. What accounts for the lag between the monetary policy that the ECB ought to have conducted and that which it has actually conducted? In 2012 and early 2013, the high rate of growth in labour costs, which discouraged the ECB from lowering its interest rates; From 2013 to 2015, the improvement in growth and the fall in unemployment, which did not encourage a highly expansionary monetary policy; From 2014 to 2016, the very low level of inflation, linked to the fall in oil prices, which led to the use of quantitative easing. Whatever the reasons, there has been a chronic lag in monetary policy choices in the euro zone relative to what would have been “normal”. This lag explains why the repo rate is still zero whereas unemployment has been declining for five years and companies face very significant hiring difficulties.
Provider
Natixis
Natixis

Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.

 

Analysts
Patrick Artus

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