The (In)Effectiveness of the Latest Round of ECB Asset Purchases

This is a preview from the National Institute Economic Review, November 2019, no 250.

On 12 September 2019, the ECB Governing Council announced a comprehensive package of stimulatory measures in response to a weaker outlook for growth and inflation and a concern that inflation expectations were drifting further below the level consistent with the inflation target. A key component of the package was the decision to restart net purchases under the asset purchase programme (APP) at a monthly pace of €20 billion from 1 November. Purchases would continue until around the time that the ECB decided to withdraw monetary stimulus by raising rates again. This was seen by the markets as an open-ended commitment to further quantitative easing to ‘infinity and beyond’. In explaining the monetary measures, ECB President Draghi was keen to stress that the calibration of the package could be adjusted in the future to ensure that inflation moved towards its target in a sustained manner.

In this box, Patricia Sanchez Juanino (NIESR Database Manager) and Garry Young( Director of Macroeconomic Modelling and Forecasting) explore whether the stimulus package as currently calibrated is likely to be large enough to achieve its stated aim within a reasonable timescale.

"Our assessment is that it is not and that a substantial recalibration or additional policy measures (probably including fiscal policy) will be necessary in due course."