At a conference organised by the Bank of Japan’s Institute for Monetary and Economic Studies, Isabel Schnabel, member of the Executive Board of the European Central Bank (ECB), discussed the use of asset purchases in implementing monetary policy.
Isabel Schnabel took the view that quantitative easing (QE) increases the risk of losses for central banks as well as risks to financial stability, that it can exacerbate inequality and that prolonged periods of QE can affect the market’s functioning.
However, she believes that asset purchases should remain a tool used by central banks and that they can be a powerful tool during periods of financial market stress, as was the case during the Covid-19 pandemic.
In other instances, to prevent belief-driven price spirals from turning into solvency crises, she noted that the mere announcement by central banks of their intention to intervene, if necessary, has been effective, as was the case during the sovereign debt crisis.
Outside such periods, according to Ms Schnabel, central banks would do well to weigh the benefits of asset purchases against their costs and try to act proportionately. She felt it would be useful to use asset purchases in a “more targeted and parsimonious manner, intervening forcefully when needed, but stopping them faster”.
Lastly, she felt that reversing the effects of quantitative easing could take a long time and that portfolio rebalancing effects could persist.
Link to the text of the presentation: https://aeur.eu/f/cez (Original version in French by Émilie Vanderhulst)