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Monetary policy in exceptional times

Author

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  • Lenza, Michele
  • Pill, Huw
  • Reichlin, Lucrezia

Abstract

This paper describes the response of three central banks to the 2007-09 financial crisis: the European Central Bank, the Federal Reserve and the Bank of England. In particular, the paper discusses the design, implementation and impact of so-called "non-standard" monetary policy measures focusing on those introduced in the euro area in the aftermath of the failure of Lehman Brothers in September 2008. Having established the impact of these measures on various observable money market spreads, we propose an empirical exercise intended to quantify the macroeconomic impact of non-standard monetary policy measures insofar as it has been transmitted via these spreads. The results suggest that non-standard measures have played a quantitatively significant role in stabilising the financial sector and economy after the collapse of Lehman Bros., even if insufficient to avoid a significant fall in economic and financial activity. JEL Classification: E52, E58

Suggested Citation

  • Lenza, Michele & Pill, Huw & Reichlin, Lucrezia, 2010. "Monetary policy in exceptional times," Working Paper Series 1253, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20101253
    Note: 411196
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    References listed on IDEAS

    as
    1. Marta Banbura & Domenico Giannone & Lucrezia Reichlin, 2010. "Large Bayesian vector auto regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 71-92.
    2. John B. Taylor & John C. Williams, 2009. "A black swan in the money market," Proceedings, Federal Reserve Bank of San Francisco, issue Jan.
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    4. McAndrews, James & Sarkar, Asani & Wang, Zhenyu, 2017. "The effect of the term auction facility on the London interbank offered rate," Journal of Banking & Finance, Elsevier, vol. 83(C), pages 135-152.
    5. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148, Elsevier.
    6. Gary Gorton, 2008. "The panic of 2007," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 131-262.
    7. Shigenori Shiratsuka, 2010. "Size and Composition of the Central Bank Balance Sheet: Revisiting Japan's Experience of the Quantitative Easing Policy," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 28, pages 79-106, November.
    8. den Haan, Wouter J. & Sumner, Steven W. & Yamashiro, Guy M., 2007. "Bank loan portfolios and the monetary transmission mechanism," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 904-924, April.
    9. Marta Banbura & Domenico Giannone & Lucrezia Reichlin, 2010. "Large Bayesian vector auto regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 71-92.
    10. De Mol, Christine & Giannone, Domenico & Reichlin, Lucrezia, 2008. "Forecasting using a large number of predictors: Is Bayesian shrinkage a valid alternative to principal components?," Journal of Econometrics, Elsevier, vol. 146(2), pages 318-328, October.
    11. Domenico Giannone & Michele Lenza & Lucrezia Reichlin, 2010. "Business Cycles in the Euro Area," NBER Chapters, in: Europe and the Euro, pages 141-167, National Bureau of Economic Research, Inc.
    12. James B. Bullard, 2010. "Three lessons for monetary policy from the panic of 2008," Review, Federal Reserve Bank of St. Louis, vol. 92(May), pages 155-163.
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    More about this item

    Keywords

    financial crisis; Non-standard monetary policy;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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