THE year started with the belated adoption by the European Central Bank of quantitative easing (QE)—creating money to buy bonds—in the euro area. As the year ends, QE, which loosens monetary policy even when there is little scope to cut interest rates further, is being extended by an extra six months, so that the purchases will last until March 2017. Does this mean that the ECB’s monetary medicine is proving less effective than expected?
Mario Draghi, president of the ECB, argues on the contrary that the adoption of QE has been crucial in fostering the recovery in the euro area. QE has driven down long-term interest rates, the bank reckons, just as it did in America and Britain. Like their counterparts in those countries, ECB staff have analysed the effect of announcements about QE on the markets. Their study found that both the prospect of QE in the autumn of 2014 and the formal embrace of it in 2015—the policy was adopted in January and started in March—was responsible for half of the percentage-point fall in the average yield of ten-year government bonds in the euro zone between the start of September 2014 and the end of March...Continue reading
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