Lorenzo Burlon

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"The macroeconomic effects of an open-ended asset purchase programme"


Joint with Alessandro Notarpietro and Massimiliano Pisani.


First version: July 2018.


Abstract In this paper we evaluate the effectiveness of an open-ended asset purchase programme (APP) for the euro area. To achieve this, we use the large-scale New Keynesian dynamic general equilibrium model calibrated to the euro area and the rest of the world developed by Burlon et al. (2017), but we modify it and assume that the central bank does not announce the end date of the programme, leaving open the possibility of extending it in future periods, conditional on inflation developments. We assume that agents form their expectations about possible additional purchases beyond the horizon of the central bank’s announcement according to a rule linking them to the expected inflation gap. It is shown that an open-ended APP is more effective in immediately stimulating macroeconomic conditions than an APP with an ex-ante commitment to an end date. Moreover, the open-ended dimension provides a hedge against the materialization of negative euro-area aggregate demand shocks that push inflation away from its path towards the target. Its effectiveness is further reinforced by forward guidance on monetary policy rates.

Keywords: Central bank communication, Open-ended announcement, Non-standard monetary policy, DSGE models, Open-economy macroeconomics, Euro area.

JEL classifications: E43, E44, E52, E58.


Working paper versions:

Temi di discussione (Working papers) 1185, Bank of Italy (2018).