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Why central banks announcing liquidity injections is more effective than forward guidance
Author(s) -
Baumgärtner Martin,
Klose Jens
Publication year - 2021
Publication title -
international finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.458
H-Index - 39
eISSN - 1468-2362
pISSN - 1367-0271
DOI - 10.1111/infi.12389
Subject(s) - economics , monetary policy , quantitative easing , monetary economics , inflation (cosmology) , market liquidity , interest rate , inflation targeting , forward guidance , central bank , credit channel , physics , theoretical physics
We distinguish the announcement effects of conventional and unconventional monetary policy measures on macroeconomic variables using a high‐frequency data set that measures the impact of the European Central Bank's monetary policy decisions. For the period 2002 to 2019, we show that conventional and unconventional monetary policy measures differ considerably in their impact on inflation. While conventional measures show the expected response, that is, an interest rate cut increases inflation, unconventional measures appear to generally have no significant influence. However, this does not hold for quantitative easing, which is found to have a similar influence on inflation as the conventional interest rate changes.