The ECB's monetary policy during the coronavirus crisis - necessary, suitable and proportionate
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The ECB’s monetary policy
during the coronavirus
crisis – necessary, suitable
and proportionate*
Berlin Economic Roundtable,
2 July 2020
*This is a slightly amended version of a
Isabel Schnabel
presentation given at the Petersberger
Sommerdialog on 27 June 2020. Member of the ECB Executive Board
www.ecb.europa.eu ©Severe economic downturn with medium-term consequences
Current Eurosystem projections
Real gross domestic product (index: 2019Q4 = 100) Unemployment rate in the euro area (%)
June 2020 BMPE - euro area Realised unemployment rate
March 2020 MPE - euro area June 2020 BMPE
June 2020 BMPE - Germany March 2020 MPE
110 12
105
100 10
95
8
90
85
6
80
75 4
2019 2020 2021 2022 2018 2019 2020 2021 2022
Source: ECB.
Note: (B)MPE = (Broad) Macroeconomic Projection Exercise.
The area shaded in grey shows the range of estimates covering
a mild to a severe evolution of the crisis. 2 www.ecb.europa.eu ©Monetary policy crisis measures may have prevented a severe financial crisis
Indicator of systemic stress in financial markets (CISS)
Euro area US Euro area US
1.0 1.0
0.9 PEPP Franco- 0.9
announcement German
0.8 recovery 0.8
0.7 fund 0.7
proposal
0.6 0.6
0.5 0.5
0.4 0.4
0.3 0.3
0.2 0.2
0.1 0.1
0.0 0.0
1999 2002 2005 2008 2011 2014 2017 2020 Oct-19 Dec-19 Feb-20 Apr-20 Jun-20
Source: ECB Working Paper No 1426. Note: CISS stands for Composite Indicator of Systemic Stress (0 = no stress,1 = high stress). The indicator aggregates stress signals from money,
bond, equity and foreign exchange markets.
Last observation: 29 June 2020.
3 www.ecb.europa.eu ©Marked weakening of inflation over the medium term
Current Eurosystem projections
Inflation rate Core inflation rate
(annual rate of increase HICP, %) (annual rate of increase HICP excl. energy and food, %)
June 2020 BMPE range March 2020 MPE Realised HICP excl. energy and food
June 2020 BMPE
June 2020 BMPE March 2020 MPE
2.0 2.0
1.6 1.6
1.2 2.0 1.2
1.6
0.8 1.2 0.8
0.8
0.4 0.4 0.4
0.0
0.0 -0.4 0.0
2019 2020 2021 2022
-0.4 -0.4
2019 2020 2021 2022 2018 2019 2020 2021 2022
Source: ECB. Notes: (B)MPE = (Broad) Macroeconomic Projection Exercise.
The area shaded in grey shows the range of estimates covering a mild to a severe evolution
of the crisis.
4 www.ecb.europa.eu ©Declining real equilibrium rate in the euro area makes unconventional monetary
policy a suitable instrument
Model-based estimates of the real equilibrium rate in the euro area (%)
Range of estimates
4 4
2 2
0 0
-2 -2
-4 -4
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Source: “The natural rate of interest: estimates, drivers, and challenges to monetary policy”, ECB Occasional Paper, No 217. Updates: Ajevskis (2018), Brand, Goy, Lemke (2020), Brand,
Mazelis (2019), Fiorentini, Galesi, Pérez-Quirós, Sentana (2018), Holston, Laubach, Williams (2017), Jarocinski (2017).
Note: The area of the estimates includes point estimates from several models and therefore reflects model uncertainty, but no other source of uncertainty.
5 www.ecb.europa.eu ©Markedly positive estimated effects of monetary policy measures
on financing conditions, inflation and economic growth
Estimated impact of the monetary policy
Financing conditions in the euro area (index) measures taken since March 2020 (percentage points)
6.0 2.0
Estimated impact via a suite of models
PEPP
5.0 1.5
announcement
0.8 0.8
4.0 1.0
Better
3.0 0.5 0.6 0.6
2.0 0.0
0.4 0.4
1.0 -0.5
Worse
0.0 -1.0 0.2 0.2
APP
-1.0 -1.5
announcement 0.0 0.0
-2.0 -2.0 2020 2021 2022 2020 2021 2022
2014 2016 2018 2020 Inflation Real GDP growth
Sources: Refinitiv and ECB calculations. Notes: Weighted average of the1-year OIS, 10-year OIS, Source: ECB. Notes: The chart shows the average of estimates from various models. The measures
effective exchange rate of the euro versus 38 other currencies and the Euro STOXX. The weightings include the PEPP, the TLTRO III and the increase in the APP of €120 billion.
were determined based on an impulse response in inflation as part of a
VAR. Last observation: 23 June 2020.
6 www.ecb.europa.eu ©More negative policy rates would have significantly increased the distributional
effects on savers and borrowers
Asset purchases vs. lowering key rates: Estimated change in annual interest income and
required estimated rate change (basis points) payments (euro per household)
Actual change 2014-2019 (no further policy support)
Estimated DFR cut Additional impact March & June APP/PEPP
Additional impact w/ additional DFR cuts instead of March &
June APP/PEPP
0 0 400
300
-50 -50 200
100
-100 -100
0
-100
-150 -150
-200
-300
-200 -200 Net-borrower (32%) Net-saver (68%)
Source: ECB. Notes: The graph shows the reduction in the key interest rate on banks’ overnight deposits Source: Dossche, Hartwig and Pierluigi (2020), mimeo. Note: Net borrowers = households with negative
that would have been necessary to have the same effect on inflation as bond purchases under the financial wealth; net savers = households with positive net financial wealth. Percentages on the
APP/PEPP of €1.47 trillion. The blue area shows the range of estimates horizontal axis refer to the share of these households in the total number of households.
from various models. The yellow diamiond shows the median.
7 www.ecb.europa.eu ©No indication of reduced budgetary discipline due to bond purchases
Primary budget balances (%) Economic growth and fiscal stimulus in 2020 (%)
Euro Area Forecast Real GDP growth Fiscal stimulus
5.0
Germany
2.5
Euro Area
0.0
-2.5 Italy
-5.0 France
-7.5
Spain
-10.0
2010 2012 2014 2016 2018 2020 0 -2 -4 -6 -8 -10 -12
Source: European Commission AMECO database. Sources: ESCB calculation June 2020 BMPE and European Commission AMECO database.
Notes: Budget surpluses and deficits before taking into account interest payments. The grey lines show Notes: Real growth refers to the June Eurosystem projections. Fiscal stimulus is calculated from the
Germany, France, Italy and Spain. change in the primary budget balance, adjusted for the growth cycle. AMECO figures refer to the latest
Last observation: AMECO May 2020. available forecasts published by the European Commission and do not take into account the most recent
8 announcements on fiscal policy programmes.
www.ecb.europa.eu ©Thank you for your attention
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