Quantitative Tightening in the Eurozone?

This is a preview from the National Institute Economic Review, February 2018, no 243

This Box, prepared by NIESR Principal Economist Iana LIadze and Senior Economist Arno Hantzsche, analyses the effects that a possible announcement by the European Central Banks of ‘quantitative tightening’ may have on the Euro Area economy.

"As the Euro Area economy recovers, the European Central Bank in January 2018 started to reduce the pace at which it purchases public and private sector assets each month. Purchases will continue at least until September, by which time the central bank will decide whether to keep expanding its balance sheet. The ECB will have several options available and the economic outlook will be critical for its decision. It may choose to hold stable the stock of assets held, which by then will be substantially above €2 trillion, by reinvesting proceeds from maturing debt. This is the assumption we make in our baseline forecast. Alternatively, the ECB may make an announcement about a future reduction of assets held, by letting debt mature or actively selling bonds on secondary markets. (...) This box tries to gauge the effects such an announcement of ‘quantitative tightening’ may have on the Euro Area economy."