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.

Abstract This paper evaluates the macroeconomic effects of the Eurosystem's expanded asset purchase programme (APP) under alternative assumptions about (i) unwinding the asset positions accumulated under the APP and (ii) current and future paths of the policy rate (forward guidance). To this purpose, we simulate a New Keynesian model of the euro area (EA). Our results are as follows. First, if the monetary authority brings forward the unwinding of its long-term sovereign bond holdings, the stimulus from the APP on inflation and economic activity is correspondingly reduced. Second, if the monetary authority communicates that the policy rate will be held constant for 1 year instead of 2, the APP would be less effective and the increase in inflation would be halved. Third, an early exit from bond holding subdues the impact of the APP, delaying the normalization of monetary policy conditions after a negative EA-wide demand shock.

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

JEL classifications: E43, E52, E58.

Published version:

- International Finance, 2017, 20(2), pp. 155–173.

Working paper versions:

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

Press releases:

- Panel Discussion: "The Real Effects of Disrupted Credit: Evidence from the Global Financial Crisis," Remarks by Ignazio Visco, Governor of the Bank of Italy, at the Per Jacobsson Lecture by Ben S. Bernanke, BIS, Sunday, 24 June 2018.


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