Philip R Lane: The monetary policy toolbox - evidence from the euro area

Keynote speech by Mr Philip R Lane, Member of the Executive Board of the European Central Bank, at the 2020 US Monetary Policy Forum, New York City, 21 February 2020.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction

I would like to thank Chicago Booth for inviting me to speak at the 2020 U.S. Monetary Policy Forum, sponsored by the Initiative on Global Markets at the University of Chicago Booth School of Business, New York, New York.

The focus of this year's US Monetary Policy Forum, the analysis of unconventional monetary policies, is relevant for many economies, including the euro area. That said, while central banks face many common challenges, the evolution of economic, financial and monetary conditions in the euro area was also specifically influenced by both the euro area sovereign debt crisis that followed the global financial crisis and the European policy responses to these crises. As a result, the euro area is at a different point in the monetary policy cycle than other jurisdictions.

The post-crisis monetary policy of the ECB shares many similarities with that of the Federal Reserve: having largely exhausted the conventional space for moving its policy instrument (the short-term policy rate), the ECB turned to a broad set of unconventional measures in pursuit of its statutory objective. However, there are important differences between the unconventional measures taken by the Federal Reserve and the ECB. In particular, the ECB moved into negative territory with its policy rate, employed targeted refinancing operations to promote credit growth and customised its asset purchase programme (APP) to the specific context of the euro area. Our understanding of the propagation mechanisms of these measures and their efficacy in supporting the economy and the inflation process is steadily deepening.