Lorenzo Burlon

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"Macroeconomic effectiveness of non-standard monetary policy and early exit. A model-based evaluation"


Joint with Andrea Gerali, Alessandro Notarpietro, and Massimiliano Pisani.


First version: July 2016.


Accepted for publication in International Finance.


Abstract This paper evaluates the macroeconomic effects of the Eurosystem's expanded Asset Purchase Programme (APP) under alternative strategies as regards (i) the unwinding of asset positions accumulated under the APP and (ii) communication of current and future paths of the policy rate (forward guidance). To this purpose, we simulate a New Keynesian model of the euro area. Our results are as follows. First, as the monetary authority brings forward the selling of long-term sovereign bonds, the stimulus from the APP on inflation and economic activity is correspondingly reduced. In particular, if the bonds are sold immediately after purchases end, the impact on inflation is negligible. Second, if the monetary authority communicates that it will hold the policy rate constant for one year instead of two, the APP is less effective, and the inflation increase is halved. Third, the subdued impact of the APP associated with an early exit from the programme delays the return to a standard monetary policy regime.

Keywords: DSGE models, open-economy macroeconomics, non-standard monetary policy, zero lower bound.

JEL classifications: E43, E52, E58.


Working paper versions:

Temi di discussione (Working papers) 1074, Bank of Italy (2016).


Presented:

- IV Internal Workshop of the Bank of Italy's Economic Outlook and Monetary Policy Directorate, Bank of Italy, March 2016 (Massimiliano Pisani).