The Effects of ECB Unconventional Policies on Asset Prices: A Report

This report investigates the effects of the European Central Bank's (ECB) unconventional monetary policies, particularly the "Outright Monetary Transactions" (OMT) program, on asset prices. The study employs an event study methodology to analyze the impact of the OMT announcement and related policy speeches during the 2012 European crisis. The analysis focuses on the context surrounding the OMT, including the economic situation before the announcement, and examines the methodology, dataset, and results of the event study. The report aims to determine whether the ECB's policies successfully influenced asset prices, considering factors such as the crisis context, policy implementation, and the effectiveness of the OMT program in stabilizing financial markets. The report concludes by summarizing the findings and interpreting the results in the context of the European financial landscape.

Running head: MONETARY POLICY AND CENTRAL BANKING
Monetary Policy and Central Banking
Name of the Student:
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MONETARY POLICY AND CENTRAL BANKING
Contents
Introduction:....................................................................................................................................2
Conclusion:......................................................................................................................................2
Layout:.............................................................................................................................................3
References:......................................................................................................................................4

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MONETARY POLICY AND CENTRAL BANKING
Introduction:
The great financial crisis of 2008/09 brought in the new norm in banking industry known as
Non-conventional monetary policy. The reason to discuss the matter is because of the importance
of the new norm in the banking sector and the economy as a whole. In fact all the large
economies around the world have accepted the non-conventional monetary policy as the way to
run the banking system in the country. The main concept behind the new norm in banking
industry is to expand the balance sheet by acquiring assets and by target lending. The impact of
the policy in large economies across the globe has outlined the importance of non-conventional
monetary policy.
Conclusion:
Summary:
The non-conventional monetary policy came into existence after the great financial crisis hit the
large economies across the globe in 2008/09. Prior to that banks in most of the developed nations
used to operate through short term interest rate. There were mainly two reasons for central banks
to change their policy to non-conventional monetary, these are policy rates approaching lower
bounds and systematic malfunction of financial intermediation. As a result of these two extremes
the central banks in large economies understood the necessity of introducing non-conventional
monetary policy to deal with the economic and financial crisis of 2008/09. In order ensure
broader influence of central banks on financial conditions the new monetary policy was essential
as the bans were losing controls of the economy subsequent to the financial crisis (Albertazzi,
2016).

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MONETARY POLICY AND CENTRAL BANKING
The different types of policies under non-conventional monetary policy introduced by European
banks are outlined below.
I. Conditions attached or without conditions pre-commitment policy rates for forward
guidance.
II. Achieving expansion of monetary base by quantitative easing.
III. With the objective of risk premium compression purchase of different types of assets
known as qualitative easing.
IV. Supply and pledging of assets as collateral is known as collateral policies.
Opening:
As mentioned that the Central banks in large and developed economies used to operate with
short term interest rates prior to 2008/09. With recession hit the economy hard in 2008/09 the
banks were under obligation to make necessary changes to increase the influence of banking
sectors on the overall economy. As a result the non-conventional monetary policy was
introduced in all the developed and large economies (Cúrdia and Woodford, 2010).
Layout:
Thus, the main objective behind introduction of non-conventional monetary policy by the
European Central banks is to deal with the collapsed economy by influencing the economic
factors. Recession and financial crisis that hit the economy in different parts of the globe in
2008/09, especially in European countries and in USA the need of the hour was tom introduce a
new banking policy. As a result the non-conventional monetary policy came into force.

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MONETARY POLICY AND CENTRAL BANKING
References:
Albertazzi, U. (2016). The Bank Lending Channel of Conventional and Unconventional
Monetary Policy. SSRN Electronic Journal, 2(3), p.18.
Cúrdia, V. and Woodford, M. (2010). Conventional and Unconventional Monetary
Policy. Review, 92(4), pp.12-15.