Saturday | 31 Oct 2020
CEPS Project

Effectiveness of the ECB programme of asset purchases

Where do we stand?


The massive sovereign bond-buying programme(s) that started in early 2015 should now be bearing fruit, but there is little sign of any improvement in inflation, despite a recovery in oil prices. Assessing the effectiveness of Quantitative Easing (QE) in the euro area in terms of financial market indicators, such as interest rates or inflation expectations, yields mixed results. Interest rates began falling even before the announcement of the sovereign bond-buying, which is widely attributed to investors anticipating QE. But inflation expectations also fell during this same period. Should one conclude that the anticipation of QE led to lower expectations of inflation? Financial market indicators do not exhibit any sustained change or trend since the bond-buying started. The movements up and down in interest rates, and inflation expectations, can be interpreted in many ways. Our preferred interpretation is that that QE in the euro area was a reaction to a global deflationary trend, but that the bond purchases did not affect inflation in the euro area in a sustained way. It bears repeating that QE in the euro area is not a centralised policy. The ECB executes only a small fraction of the programme.

This project was awarded under the Framework Service Contract for the provision of external expertise in the field of monetary and economic affairs (Monetary dialogues) (IP/A/ECONMD/FWC/2014-026/C6) with the European Parliament. The full list of CEPS’ Framework Contracts is available here.

Daniel Gros

Distinguished Fellow

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