Conventional and unconventional monetary policy

Abstract

Aikaterini Pantazatou and Ioannis Asimakopoulos overview the conventional and unconventional monetary policies that the ECB has deployed to pursue its mandate as the central bank of the Eurozone. The authors underline how the EU treaties assign to the ECB the primary task of maintaining price stability, and explain the traditional toolkit to achieve this goal, including interest rates changes, open market operations, standing facilities, i.e., the deposit and the marginal lending facilities, and minimum reserve requirements for credit institutions. At the same time, they underline how conventional monetary policy came under pressure in context of the euro-crisis, where interest rates policy reached its lower bound and the transmission of monetary policy came under pressure, forcing the ECB to develop new instruments, such as targeted long-term refinancing operations, securities market programme, outright monetary transactions (OMT) and - finally - public assets purchase programmes, otherwise known as quantitative easing (QE). As this chapter explains, the deployment of unconventional monetary policy confirms that the ECB enjoys powers analogous to other central banks, but also raises legal challenges to the ECB actions.