On 21 October 2016 the Bank of Italy hosted the Workshop “Unconventional monetary policy: Effectiveness and risks.”
The workshop focused on the effectiveness and possible risks of unconventional monetary policy, with special attention devoted to the asset purchase programme (APP) and other measures adopted by the Governing Council of the ECB. The APP was launched in the Autumn of 2014; subsequently, its scope has been widened – in particular at the beginning of 2015, by extending purchases to sovereign bonds – and its duration has been lengthened. It will continue until March 2017, or beyond if necessary, and in any case until the path of inflation shows a sustained adjustment consistent with the price stability objective. In the light of the persistence of very low inflation and modest growth in the euro area, doubts have been raised by a number of commentators about its effectiveness. Other commentators have expressed concerns that the APP may entail undesirable side effects, mostly in terms of financial stability. The papers presented in the workshop address these issues, providing analyses and empirical evidence that may help policymakers in assessing both the effectiveness of the measures adopted so far and the possible risks going ahead. The workshop took place at Bank of Italy’s headquarters on 21 October 2016, gathering a number of experts from the Bank and from other Italian and international policy and academic institutions.
Nine presentations (all with discussion) were distributed over four sessions. The works presented in the first session focused on the main transmission mechanisms through which unconventional monetary policies affect macroeconomic variables and provided quantitative estimates of their effectiveness. The second session explored the reaction of asset prices to the APP and to previous unconventional measures adopted in the euro area and the United States. The third session was devoted to empirical evidence on portfolio rebalancing effects and the possible rise of asset price bubbles. The fourth session provided empirical analysis of the role of banking intermediation in the transmission of monetary policy impulses to the real economy, in particular through credit supply.
The main messages that emerged from the presentations and the debate were the following. First, the measures adopted so far have been (very) effective; in particular, the strong reduction in sovereign yields improved the financial environment and made it less uncertain. Second, these effects did not come at the expense of financial stability: asset valuation is still in line with fundamentals and there is no general shift towards excessive risk-taking (these findings complement those of different studies, not included in the programme, ruling out the presence of perverse side-effects from APP in terms of wealth and income redistribution). Third, as for the propagation channels, a crucial role is played by the confidence and expectations channel; a related conclusion is that a premature withdrawal of monetary accommodation would not only result in a delay of a full-fledged recovery but might also reignite financial market tensions and lead the euro area further away from price stability. Fourth, banks’ balance-sheets impairment and weak bank profitability may be a relevant obstacle to the transmission of the monetary policy impulses to crucial sectors of the economy; such difficulties may be exacerbated by excessive tightening of the regulatory stance, which should therefore be avoided.
