The European Central Bank: Twenty-five Years of Single Monetary Policy in the Euro Area

The analytical framework introduced in Chapter 3 is applied here to the implementation of monetary policy in the euro area. The traditional ECB’s operational framework was the interest rate steering—corridor system. Starting with the financial crisis of 2007/2008, the ECB has introduced a first set of “unconventional measures”: the years between 2008 and 2014 can be seen as a transition phase, during which the ECB’s implementation framework has evolved from a corridor to a floor system (albeit unofficially). With the adoption of APP and T-LTROs in 2015, the ECB started to explicitly target the size of its balance sheet. In the euro area, QE policies have been complemented by the negative interest rate policy. New QE measures have been adopted in 2020–2021 as a reaction to the pandemic crisis. In 2022, the ECB exited QE policies and started a normalization process. Despite a downsizing of its balance sheet, the ECB currently maintains an excess liquidity; the deposit facility rate is the key policy rate. Those different stages are discussed in this chapter and some descriptive evidence is provided. I will also address the strategy of the ECB and some issues related to the specific institutional framework of the euro area.