Effects of ECB balance sheet policy announcements on inflation expectations

Abstract

We investigate whether ECB balance sheet policy announcements in the wake of the global financial crisis have affected the ECB’s monetary policy credibility as measured by long-term inflation expectations, by looking at their effects on euro area inflation swap rates of maturities up to 10 years. We consider asset purchase programmes and long-term refinancing operations with maturities above 6 months. We find that these announcements only led to a slight increase in long-term inflation expectations. We therefore find no strong evidence to suggest that ECB balance sheet policy announcements have led to much higher long-term inflation expectations, suggesting that the monetary policy credibility of the ECB has not been harmed by these policies.

Keywords:

• monetary policy
• central bank communication
• balance sheet policies
• inflation expectations

JEL Classification:

• E52
• E58
• G14

Acknowledgements

I would like to thank Bill Allen, Peter van Els, Jan Willem van den End, Jon Frost, Gabriele Galati, Petra Gerlach-Kristen and Marco Hoeberichts for helpful comments and discussions, and Jakub Demski and Agne Subelyte for excellent help with the data.

Notes

¹ For robustness, we also considered the impact of a wider selection of ECB balance sheet policy announcements as identified in Table 2 of Falagiarda and Reitz (2013), leading to the same conclusion, as reported in the Working Paper version of this article.