As the recent experience in the US and Japan has shown (and the FT’s James Mackintosh” explains), quantitative easing may produce its strongest effects on financial markets before the policy is implemented. In other words, it is the expectation that the central bank will embark on massive asset purchase that matters most, more than the purchase itself. And the more markets are convinced that the policy will be successful, the less the central bank may need to actually intervene.
When it comes to the eurozone, markets continue to have doubts about whether the European Central Bank will ultimately be willing to purchase government bonds. Indeed, such a policy decision seems to raise legal and institutional issues that make it “the instrument of last resort”. The ECB has clarified that the purchase of government bonds in the secondary market is not prohibited by its statutes, and can be used if the purchase of private assets is insufficient to boost the size of the balance sheet back to 2012 levels.
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