ECB Monetary Policy and the Euro during the Crisis

Abstract

The Eurozone crisis and its aftershocks have forced the ECB to move into uncharted territory. Historically low interest rates and even negative deposit rates, various asset purchase programs, bank liquidity support, forward guidance, and recently open-ended quantitative easing (QE) have all been used to address tail risks from sovereign and bank sector shocks and deflation risks. The ECB has become the subject of criticism because of these measures. Some have argued that it has been behind the curve, acting too late and not aggressively enough. Others have argued that the central bank has already gone too far. The verdict is still out, but the fact is that the ECB’s crisis management has so far avoided the worst and the euro has survived for now, but the Eurozone’s recovery has been very weak.