Has the ECB been so passive?

by on November 23, 2011 at 2:54 am in Economics | Permalink

Consider this chart:

There is a longer discussion here.  One way to read this is: “That’s not yet a lot.”  Another is: “Oh my goodness, they’ve already been doing quite a bit.”  Another is: “Lots of buying without a credible signal of future intent isn’t worth a whole lot.”  I would stress the point that credible long-run signals don’t exist for Europe right now.  No one knows what “the game” will be like a year now, or less.  That makes all possible solutions harder to pull off, since announcements can be shrugged off as idle chatter.

Proteos November 23, 2011 at 4:02 am

Today, the total public debt of the eurozone is around 8e12 €. So the ECB has bought 150e9 € or 2% of total public debt.
By comparison, the BoE has committed to hold more than a quarter of UK’s public debt with his latest round of QE. I don’t know how much TBills the Fed has bought since 2008, but I’m sure it’s not negligible.

From my point of view, the Fed and the BoE have been very successful at holding rates down despite the huge public deficits. To have an effect, such policies require huge ammounts of cash, it’s not just a question of waving cash in front of bond holders.

The ECB has had some results with its policy, but only on german yields. People selling italian government bonds to the ECB then buy german government bonds. There are more bonds on offer than the ECB is able/willing to buy, so the price go down and yields up in the periphery.

david November 23, 2011 at 4:22 am

Didn’t it raise rates sometime in July? When a central bank both raises rates and hoards securities, one can only conclude that the securities are not really being held solely for “monetary policy purposes”.

NAME REDACTED November 23, 2011 at 7:27 am

I just heard someone say yesterday that the ECB was in serious financial trouble. I don’t know what exactly that would mean though.

Ashwin November 23, 2011 at 4:43 am

“credible long-run signals don’t exist for Europe right now.”

Exactly. The bazooka not only has to be promised but it has to be used. And there is no appetite for this amongst either the Germans (who don’t want to bailout the rest or suffer inflation) or the bailed out masses (who don’t want austerity and German/IMF control).

NAME REDACTED November 23, 2011 at 7:26 am

It doesn’t matter if it is used, if people think it will just be temporary or the euro won’t survive.

Scott Sumner November 23, 2011 at 8:35 am

David’s right, Europe is not in a liquidity trap. There is no evidence that it would be difficult for the ECB to ease monetary policy.

Silas Barta November 23, 2011 at 10:50 am

I thought you were going to do your usual spiel about, “The policy wasn’t successful, therefore, they really weren’t doing a lot.”

Andrew Edwards November 23, 2011 at 8:54 am

So they went from 140B to 250B assets held.

I would say that 100B is pretty darn close to “passive” in the current climate.

Beware the y-axis not set at zero!

Rahul November 23, 2011 at 9:09 am

Also how was the trendline historically? This plot only shows 6 months.

Lewis November 23, 2011 at 1:17 pm

Ya, how about we see a chart that puts this in the context of the market size, since that’s what is at stake? This chart only tells us that the ECB’s recent action has a size greater than zero.

Sigivald November 23, 2011 at 3:45 pm

This chart makes The Baby Edward Tufte* cry, for exactly the reason Mr. Edwards said.

(The thing it’s illustrating is still meaningful, but instead of an over-an-order-of-magnitude increase -as implied at a glance – we have… a doubling.

The difference is significant.)

(* Like The Baby Jesus, but less Jesus-y, and more Tufte-y.)

NAME REDACTED November 25, 2011 at 4:24 am

Possible:
Lots of buying without credible future signals, just raises rates.

Comments on this entry are closed.

Previous post:

Next post: