5. FACING THE LOWER BOUND: WHAT WILL THE ECB DO IN THE NEXT RECESSION? Bruegel Study 2020

Cameron, Aliénor and Claeys, Grégory and Demertzis, Maria (2020) 5. FACING THE LOWER BOUND: WHAT WILL THE ECB DO IN THE NEXT RECESSION? Bruegel Study 2020. UNSPECIFIED.

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Abstract

In responding to the global financial crisis and its aftermath, the ECB has pushed its monetary policy into unchartered territories over the past decade. Today, it appears increasingly constrained by persistently low interest rates and the uncertainty of the environment it operates in. This paper seeks to understand these new challenges and assess whether its current toolkit will allow the ECB to weather the next European recession. We make five key recommendations: first, the ECB must find a way to mitigate the potentially negative effects of its negative interest rate policy; second, it must rethink the issuer limit on its asset purchase program; third, a review of its monetary policy framework is in order; fourth, it must be fully prepared to use its outright monetary transactions (OMT) program; and finally, more innovative unconventional policies might be necessary.

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