ECB policy consistency – loss of independence and the real estate bubble?

Rybacki, Jakub (2019): ECB policy consistency – loss of independence and the real estate bubble?

Abstract

During the period 2015-2018 European Central Bank (ECB) has implemented a large-scale asset purchases program in order to revive inflation expectations and achieve sustainable annual HICP dynamics close to 2%. Furthermore, bank communicated that policy should remain accommodative for a long time in the foreseeable future. Based on an extended Taylor rule with Wu-Xia shadow rates and variable Holston-Laubach-Williams natural rates we analyzed discretionary deviation in policy of ECB, US Federal Reserve (Fed) and Bank of England. We identified a widening dovish bias in ECB Governing Council policy during the years 2015-2019. Such policy resulted in increase of real estate prices and the risk of market bubble measured by the UBS index. The likely consequence of this problem is a decrease in public trust in central banks and increase of support for populist movements.

• Item Type: MPRA Paper
• Language: English
• Keywords: forward guidance, large scale asset purchases, quantitative easing, time consistency, real estate bubbles
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies

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