ECB’s Holzmann: ECB More Effective at Stabilising Markets than Prices

5 February 2021

By David Barwick – FRANKFURT (Econostream) – The European Central Bank did better as a source of stability during the latest crisis than as a source of price stability, Governing Council member Robert Holzmann suggested on Friday.

In an opening statement at the Warwick Economics Summit 2021, Holzmann, who is Governor of the Austrian National Bank, said that an initial assessment of the ECB’s various measures during the pandemic-related crisis suggested ‘high effectiveness in stabilising financial markets and output growth and more limited effectiveness in keeping inflation close to the ECB’s target of close to 2%.’

‘So far, side effects have been contained but need to be monitored carefully going forward,’ he continued. ‘There are concerns about the longer-term effectiveness of these monetary policy instruments, i.e. falling marginal effectiveness and increasing side effects.’

In the short run, policy will probably need to consider the equilibrium interest rate ‘as exogenous and low or even negative’, he said, implying a continued nonstandard orientation of monetary policy.

In the longer run, it would hopefully be possible to view the equilibrium interest rate ‘as an endogenous variable that is accessible to policy interventions and that can be raised back to levels seen in the past’, he said.