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Policy Article

ECB stepping on the brake(s) - monetary tightening in an abundant reserve system

Monetary Dialogue Papers

Authors

  • Sonnenberg
  • N.

Publication Date

DOI

10.2861/37563

Key Words

ECB

Euro area

monetary policy

Related Topics

Monetary Policy

European Union & Euro

Business Cycle Euro Area

Confronted with a historic inflation surge, the ECB steps on the brake(s). While interest rate hikes are its primary tool, unconventional tools are also adjusted to strengthen the brake intensity. Quantitative tightening will reduce the stock of bonds in a slow process. The change from a scarce to an abundant reserve system will prevail. In contrast to previous monetary tightening cycles, in an abundant reserve system huge interest expenses result in central bank losses and fiscal costs for the coming years.

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