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ECB policy consistency – loss of independence and the real estate bubble?

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  • Rybacki, Jakub

Abstract

During the period 2015-2018 European Central Bank (ECB) has implemented a large-scale asset purchases program in order to revive inflation expectations and achieve sustainable annual HICP dynamics close to 2%. Furthermore, bank communicated that policy should remain accommodative for a long time in the foreseeable future. Based on an extended Taylor rule with Wu-Xia shadow rates and variable Holston-Laubach-Williams natural rates we analyzed discretionary deviation in policy of ECB, US Federal Reserve (Fed) and Bank of England. We identified a widening dovish bias in ECB Governing Council policy during the years 2015-2019. Such policy resulted in increase of real estate prices and the risk of market bubble measured by the UBS index. The likely consequence of this problem is a decrease in public trust in central banks and increase of support for populist movements.

Suggested Citation

  • Rybacki, Jakub, 2019. "ECB policy consistency – loss of independence and the real estate bubble?," MPRA Paper 95906, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:95906
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    More about this item

    Keywords

    forward guidance; large scale asset purchases; quantitative easing; time consistency; real estate bubbles;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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