1. Monetary Policy of the European Central Bank and Its Consequences Mateusz Benedyk

2. ECB’s typical instruments of monetary policy ECB’s contribution to economic boom 2004- 2008 Changes in monetary policy since the Financial Crisis of 2008: farewell to traditional tolls of monetary policy Toward socialism? 2012-2015

3. ECB traditional policy tools Interest rates: manipulating short-term part of the yield curve  Deposit Facility (DF)  Marginal Lending Facility (MLF) Reserve requirements (2%, January 2012: 1%) Open market operations  Main Refinancing Operations (MRO)  Long-Term Refinancing Operations (LTRO)

6. Compound annual growth of M3 I 2002 - I 2009 Ireland12,5% Spain10,7% Finland9,5% Austria9% Greece8,7% Italy7,7% Netherlands7,4% France7% Belgium6,8% Germany5,9% Luxembourg5,9% Portugal5,3%

7. GDP Growth 2002-2010 Country 2002-2007 (Boom) 2008-2010 (Bust) Average (Boom/Bust) Ireland34,51-10,1521,5%/-5% Spain22,09-2,93 Finland22,28-4,73 Austria15,94-0,21 Greece27,08-6,87 Italy7,19-4,95 Netherlands12,44-0,0913,8%/-0,9% France11,39-1,55 Belgium13,590,33 Germany8,73-0,51 Luxembourg30,14-1,97 Portugal6,22-1,54

8. ECB’s Policy since the Financial Crisis International coordination: Fx Swaps Unlimited funding Lower interest rates Lengthening of the duration of lending (3 months – 6 months – 1 year – 3 years) Assets purchases: covered bonds; government bonds Changes in collateral policy

10. Lender or Owner of Last Resort? ECB became an important part of bank funding (especially Greece, Ireland, Spain) Due to changes in collateral policy ECB influences prices of a lot bigger pool of assets ECB committed itself to long-term investing Toward socialization of investment?

12. 2012-2015 Banks pay back the ECB’s loans Securities bought by ECB mature Steady decline of ECB’s balance sheet and monetary base Moving back from socialization of financial markets

13. ECB’s balance sheet (millions of euro)

14. 2012-2015 Small growth of money supply despite agressive stance of ECB (chart – M3 growth) Capital regulation?

15. 2012-2015 2015 – ECB starts Quantitative Easing – going back to crisis mode despite faster economic growth (chart – quarterly year on year GDP growth)