03 November 2015

ECB Economic Bulletin: The transmission of the ECB’s recent non-standard monetary policy measures

The results presented in this article suggest that the TLTROs and APP measures have significantly lowered yields in a broad set of financial market segments. This has helped push the monetary policy accommodation through the intermediation chain to reach households and firms.

This article evaluates the transmission through bank intermediation, bank lending and money of the ECB’s non-standard measures announced since June 2014, namely the credit easing package, focusing on the targeted longer-term refinancing operations (TLTROs), and the expanded asset purchase programme (APP), focusing on the public sector purchase programme (PSPP).

The results presented suggest that these measures have significantly lowered yields in a broad set of financial market segments, with the effects generally increasing with maturity and riskiness. Both programmes have contributed to a reduction in banks’ funding costs, which has incentivised them to pass on the cost relief to final borrowers by granting more credit at better conditions. Overall, the improved credit conditions in the euro area have helped push the monetary policy accommodation through the intermediation chain to reach households and firms. [...]

Conclusions

This article has analysed the impact on money and credit of the most recent non-standard measures announced by the ECB. The empirical evidence suggests that these policies have successfully improved the credit conditions in the euro area and supported the ongoing recovery in lending activity.

The TLTROs and APP have significantly lowered yields in a broad set of financial market segments. The long-term bank funding provided by the TLTROs and the acquisition of longer-term private and public sector securities through the APP have had effects on a range of asset prices which generally increase with maturity and riskiness.

Reductions in bank bond yields, i.e. less expensive market-based financing for banks, have improved their funding costs, enabling a more forthcoming bank attitude towards lending. In practice, the elimination of illiquidity and abnormally high spreads and mark-ups in malfunctioning credit markets has incentivised banks and other lenders to pass the funding cost relief on to final borrowers in terms of higher credit flows and better lending conditions.

Overall, the non-standard measures have helped push the intended monetary policy accommodation through the intermediation chain to reach final borrowers, i.e. household and firms. This contributes to the recovery in lending and economic activity, which is expected to produce a sustained adjustment of inflation rates towards levels below, but close to, 2% over the medium term.

Full article

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