Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/237703 
Year of Publication: 
2021
Series/Report no.: 
ECB Working Paper No. 2564
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
This paper provides new empirical evidence that bears on the efficacy of unconventional monetary policies when the main policy rate is negative. When a negative interest rate policy (NIRP) is deployed in concert with rate forward guidance (FG) and quantitative easing (QE), the identification of the impacts of these unconventional instruments of monetary policy is challenging. We propose a novel identification approach that seeks to overcome this challenge by combining a dense, controlled event study with forward curve counterfactuals that we construct using predictive rate densities derived from rate options. We find that NIRP has exerted a sizeable influence on the term structure of interest rates throughout maturities while, on net, the impact of rate FG has been more muted. QE explains the lion's share of yield effects, particularly over the back end of the yield curve. We then feed these rate counterfactuals into a large-scale Bayesian VAR and generate alternative histories for the euro area macro-economy that one would likely have observed between 2013 and 2020 in no-NIRP (with or without FG) and in no-QE regimes. According to this conditional forecasting exercise, in 2019 GDP growth and annual inflation would have been 1.1 p.p. and 0.75 p.p. lower, respectively, and the unemployment rate 1.1 p.p. higher than they actually were, had the ECB abstained from using NIRP, FG and QE over the previous six years or so.
Subjects: 
Monetary policy
Large-scale asset purchases
Negative interest rates
Forward guidance
Yield curve
Forward curve
Rate options
JEL: 
C32
C54
C58
E50
E51
E52
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4750-3
Document Type: 
Working Paper

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