Published on Thursday, February 17, 2022

Europe | Eurozone monetary policy in response to COVID-19

We take a look at the monetary policy measures adopted by the ECB in response to COVID-19, evaluating their effects on financial markets during the pandemic, examining their quantitative impact on economic activity and analyzing the challenges the central bank faces.

Key points

  • Key points:
  • As more adverse scenarios with major economic and social cost have been avoided, the overall balance can be considered positive: the ECB's monetary policy has helped minimize the short and long-term economic impact of the pandemic, and stopped any hysteresis mechanisms from being activated.
  • The ECB's response has been quick, flexible and agile. It has recalibrated these measures in real time and with a forward-looking approach, taking a pre-emptive action and opting for a strategy of protecting itself from potentially more adverse scenarios.
  • Although a number of problems of identification arise when making a quantitative evaluation of the direct impact on the real economy of the ECB's measures to tackle the COVID-19 crisis, the available results indicate that their economic effects have been significant, especially in the most vulnerable eurozone countries.
  • In the specific case of Spain, at the very least it has avoided a further fall in GDP of over 3pp. Additionally, as indirect effects, the ECB’s measures have enabled the adoption of fiscal stimulus packages at national level, with an impact of around 8pp in the worst moments of the crisis).
  • The extraordinary measures taken by the ECB have opened up a window of opportunity of at least two years during which eurozone countries can carry out supply-side policies and reforms with which to transform their economies and recover or even boost their growth potential after the crisis triggered by the pandemic.

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