Combining Negative Rates, Forward Guidance and Asset Purchases: Identification and Impacts of the ECB's Unconventional Policies

This paper provides new empirical evidence that bears on the efficacy of unconventional monetary policies when main policy rate is negative. When a negative interest (NIRP) deployed in concert with forward guidance (FG) and quantitative easing (QE), identification impacts these instruments challenging. We propose novel approach seeks to overcome this challenge by combining dense, controlled event study curve counterfactuals we construct using predictive densities derived from options. find NIRP has exerted sizeable influence term structure rates throughout maturities while, net, impact FG been more muted. QE explains lion’s share yield effects, particularly over back end curve. then feed into large-scale Bayesian VAR generate alternative histories for euro area macro-economy one would likely have observed between 2013 2020 no-NIRP (with or without FG) no-QE regimes. According conditional forecasting exercise, 2019 GDP growth annual inflation 1.1 p.p. 0.75 lower, respectively, unemployment higher than they actually were, had ECB abstained NIRP, previous six years so. JEL Classification: C32, C54, C58, E50, E51, E52