Benoît Cœuré: The international dimension of the ECB's asset purchase programme

Speech by Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, at the Foreign Exchange Contact Group meeting, Frankfurt am Main, 11 July 2017.

Large-scale asset purchase programmes have become an integral part of the set of unconventional tools central banks use to achieve their domestic objectives.

When faced with negative output gaps and policy interest rates approaching their effective lower bound, these programmes have given central banks an essential tool to continue providing additional monetary accommodation, and prevent their domestic economies from falling into a deflationary trap.

Yet, in a world of integrated financial markets, purchase programmes do not only have domestic effects. This has been recognised by policymakers in the past. For example, there has been a lively debate about the effects of the Federal Reserve's purchase programmes on financing conditions in emerging market economies. However, less attention has been paid to this aspect in the case of the euro area - that is, the international spillovers of the ECB's asset purchase programme (APP).

This is what I would like to discuss in my remarks today. Specifically, I plan to cover two topics. First, I will review what we know about the APP's effect on net capital flows out of the euro area. And second, I will look at whether these capital flows have depressed exchange rates and, as a result, diverted demand away from other economies.
My main message is that the ECB's APP does appear to have triggered substantial capital flows across borders. But it is far from clear whether this explains the depreciation in the effective exchange rate of the euro. In fact, asset purchases affect the exchange rate in broadly the same way as conventional monetary policy -through expectations of interest rate differentials.