Expanded Asset Purchase Programme Research Articles

The ECB's Asset Purchase Programme: An Early Assessment

This paper analyses the effects of the European Central Bank's expanded asset purchase programme (APP) on yields and on the macroeconomy, and sheds some light on its transmission channels. It shows, first, that the January 2015 announcement of the programme has significantly and persistently reduced sovereign yields on long-term bonds and raised the share prices of banks that held more sovereign bonds in their portfolios. This evidence is consistent with versions of the portfolio rebalancing channel acting through the removal of duration risk and the relaxation of leverage constraints for financial intermediaries. It then presents a stylised macroeconomic model that incorporates the aforementioned transmission channels. The model suggests that the macroeconomic impact of the programme can be expected to be sizable.

Liquidity Management at the Zero Lower Bound and an Era of Activism in Central Banking

The paper studies liquidity management in the banking sector at the zero lower bound implemented by central banks. The new era of monetary policy with interest rates at zero and quantitative easing programs raise questions about the effectiveness of central banking policy and their impact on the banking sector. I find that the zero lower bound reduces liquidity reserves of banks and thus creates less credit supply. The T-LTRO program, developed by the European Central Bank, has helped to tackle this problem. However, the recently expanded asset purchase program reveals the opposite effect. Hence, the recent liquidity provisions by central banks have put incentives rather on de-leveraging than bank lending.

Sovereign Bond Purchases and Risk Sharing Arrangements: Sharing: Myth and Reality of the European QE

In March, the Eurosystem started to purchase on the secondary market euro-denominated bonds issued by governments, agencies and European institutions. The total amount of bond purchases is estimated to 1.14 trillion EUR until September 2016, or 60 billion EUR per month. The size of the Expanded Asset Purchase Program raises issues of scarcity of bonds to be purchased by the Eurosystem without inducing a fall of yields at record (negative) levels. Several sovereign bonds (Germany, France, Netherlands) already exhibit negative rates. Against this background, this paper reviews the main features of government bond markets in the Euro-area, including its size, structure, and current developments. Moreover it discusses the (potential) financial risks that the Eurosystem might be taking on its balance sheet in view of the currently low (or negative) yields and (expected) shortage in supply of sovereign bonds.

Doubtful it Stood…: Competence and Power in European Monetary and Constitutional Law in the Aftermath of the CJEU's OMT Judgment

Quite unsurprisingly, the CJEU has held that the ECB's OMT program does not violate EU law. In accordance with this holding, I argue in the first part of this note that the OMT program does not transgress the ECB's mandate under the Treaty, which is often interpreted too narrowly, in particular by German legal scholars. Furthermore, I argue that a violation of the prohibition of monetary financing of the member States as enshrined in article 123, para 1 TFEU cannot be inferred from the ECB's announcement of a program, which has never been implemented. In any case, there is clearly no manifest and grave transgression of EU competences which, according to the German Federal Constitutional Court's (FCC)Honeywelldoctrine, is required for an ultra vires finding. The second part of this note shows that the FCC's doctrine regarding transgressions of competences by EU organs (ultra vires review) is not only unconvincing as a matter of principle but also and worse (as on premises we can always reasonably disagree) not consistently applied to the OMT program. The note also objects to the Court's somewhat trendy blending of ultra vires and constitutional identity review of EU law through which it increasingly conceals its approach of applying the so-called constitutional constraints of European integration to the EU organs' conduct. The forthcoming FCC judgment is therefore less important as regards the quite foreseeable finding on the lawfulness of the OMT program but – hopefully – of vital importance as it might embody a more coherent relaunch of the FCC's standards of judicial review with regard to EU law.The judgment of the Court of Justice of the European Union (CJEU) on the European Central Bank's (ECB) 2012 announcement of future Outright Monetary Transactions (OMT) comes as no surprise. It had not been expected that the CJEU would interpret the European Economic and Monetary Union's (EMU) Treaty provisions the way the FCC had “suggested.” Neither had it seemed conceivable that the CJEU would reject the FCC's request for a preliminary ruling holding that a legally non-binding assessment of the EU action's lawfulness could not be requested under Article 267 TFEU. The judgment had nevertheless been awaited for with tension for two reasons: First, in the vigorous and in part very critical debate about the ECB's competences under the TFEU and its alleged ultra vires action a judgment by the CJEU was necessary to settle the fundamental European law issues at stake. This is all the more important with regard to the ECB's current Expanded Asset Purchase Program (EAPP) as well as its interconnection with the European Stability Mechanism's (ESM) financial assistance programs. The CJEU's holdings on the ECB's competences within the EMU framework are discussed in the first part of this note regarding the distinction between monetary and economic policy (infra section A.I.) and the interpretation of Article 123, paragraph 1 TFEU which prohibits monetary financing of the member States by the ECB (infra section A.II.). Second, it was clear that the judgment would shape the new stage in the changing and sometimes explosive on-off relationship between the CJEU and the FCC, the stage entered into by Karlsruhe's first ever request for a preliminary ruling. The FCC had fortified its ultra vires doctrine and clearly indicated its readiness not to follow the CJEU but to insist on the notorious “last word” of the German Constitution instead. Thus, the second part of this note discusses the constitutional legal premises of the FCC's approach and the procedural and substantial manner in which the FCC tries to scrutinize the ECB's OMT program (infra sections B.I. and B.II.). In this context, possible scenarios for the upcoming judgment (infra section C.I.) and consequences for European multi-level constitutionalism (infra section C.II.) will be discussed.

Efekti proširenog programa kupovine sredstava na inflaciju u evrozoni

The subject of this paper is the latest program of the European Central Bank, called the Expanded Asset Purchase Programme, valued around 1,100 billion euros, which may be extended as long as inflation in the eurozone has reached the planned two percent. The aim was to examine the effects of new program, the ECB launched, especially its effects on inflation in six months from the announcement of its implementation. Methods used in the paper are comparative method for predicting the movement of economic indicators across different time periods; inductive-deductive method in order to reach generalized conclusions and responses and statistical methods of scientific observation and analysis.