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28th Sep 2022

'No evidence' ECB bond-buying helped euro economy

  • The ECB has bought €2.6 trillion in government and corporate bonds through a programme known as quantitative easing (Photo: Hannelore Foerster)

There is no evidence that the European Central Bank's (ECB) so-called quantitative easing (QE) programme has had an effect on the eurozone economy, according to a new research paper published on Tuesday (19 February).

The paper, written by economists Adam Elbourne and Kan Ji, was published by the Netherlands Bureau for Economic Policy Analysis, which is part of the Dutch ministry of economic affairs.

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  • "Supported by [ECB] policy measures, the euro area economy has steadily recovered," ECB president Mario Draghi said (Photo: European Parliament)

The authors said that previous conclusions from other economists, that the ECB's unconventional monetary policy had been effective at stabilising the euro-area economy, were "unwarranted".

In those previous studies, models were used to calculate the effect of the ECB's policy and one of the inputs was the ECB's balance sheet.

Elbourne and Ji replaced the balance sheet figures with random numbers, to test the model.

They found that despite having inserted bogus figures into the model, the results were very similar. Logically, that meant that the model was not measuring an effect of the ECB's policy.

"All we can really conclude is that the evidence from these VAR models does not support the claim that unconventional monetary policy has been successful in affecting real economic activity," they concluded.

The research does not mean that the ECB's programme, which bought some €2.6 trillion in government and corporate bonds over the course of four years, had no effect.

It just means that there is no evidence yet that such an effect has occurred.

Nevertheless, a positive effect on the eurozone economy is often implied by policymakers.

Last month, ECB president Mario Draghi gave a speech in the European Parliament, in which he listed the ECB's recent measures, including QE.

"Supported by these policy measures, the euro-area economy has steadily recovered," said Draghi.

"We have now seen 22 consecutive quarters of economic growth. There are 9.6m more people in employment in the euro area than there were in the second quarter of 2013, when the number of people in work fell to its lowest point during the crisis," he added.

"The unemployment rate has declined to 7.9 percent, its lowest level since October 2008. And the employment rate of people aged 15-74 has risen from 54 percent in 1999 to 59 percent in the second quarter of 2018, the highest rate ever recorded in the euro area," Draghi went on.

Just because those positive events took place after the purchasing programme started was not conclusive proof that one caused the other.

Correlation is not the same as a causal relation.

The ECB's purchasing programme ended last December 2018.

EU judges examine ECB bond-buying scheme

The EU court will rule next year whether a €2.4tn 'quantitative easing' programme was in line with the eurozone central bank's mandate.

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The European Central Bank refused to provide important evidence when the Court of Auditors examined its management of the banking crisis. A court report said the system was substantial but had "flaws".

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The eurozone bank will prolong its quantitative easing scheme after March but will buy €60 billion of public and corporate bonds each month instead of €80 billion.

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The Frankfurt-based European Central Bank is set to get its first female leadership after the EU leaders in Brussels nominated Christine Legarde, who is current managing director of the International Monetary Fund.

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