What economists think about ECB asset purchases

Michael Maiello | Apr 27, 2017

Sections Economics

Collections IGM Poll Monetary Policy

On Thursday, the European Central Bank announced that it would continue as planned with its asset-purchase program, through which the bank has been purchasing debt issues in the open market since 2015. The bank reduced its purchases from €80 billion per month to €60 billion per month starting in April.

The program was part of the bank’s efforts to avoid deflation, and the ECB has indicated that it will run at least through December of this year, or “until the Governing Council sees a sustained adjustment in the path of inflation that is consistent with its aim of achieving inflation rates below, but close to, 2 percent over the medium term.”

In February, eurozone inflation hit 2 percent for the first time since 2013, which some may credit to the central bank’s buying. But did the program actually stave off deflation? Chicago Booth’s Initiative on Global Markets put that question to the members of its European Economic Experts Panel, 51 percent of whom agreed that it has.

“(It's) hard to see how monetary expansion, in whatever form, would do nothing for activity or inflation,” remarked Olivier Blanchard of the Peterson Institute.

In contrast, the panel was relatively uncertain about whether adding to the program in response to a European economic downturn would boost economic growth in the eurozone.

Martin Hellwig, Max Planck Institute for Research on Collective Goods  
“The associated compression of bank profitability had a significant countervailing effect.”
Response: Agree

Patrick Honohan, Trinity College Dublin
“100 years of monetary theory cannot all be wrong.”
Response: Strongly Agree

Jan Pieter Krahnen, Goethe University Frankfurt 
“APP [asset purchase program] has desired real effects if credit supply is the problem, not demand, nor structural reform. Moreover, is mild deflation a threat?”
Response: Uncertain

Elena Carletti, Bocconi
“The ECB program is not targeted directly to stimulate growth. It may help the economy recovering, but it is not its main goal.”
Response: Uncertain

Xavier Freixas, Universitat Pompeu Fabra
“Economic activity can be helped by this type of measure in the short run, but not in the long run.”
Response: Disagree

Lubos Pastor, Chicago Booth
“Hard to tell. In any event, ECB aims to manage inflation rather than boost growth.”
Response: Uncertain