Structural Reforms by Jakob de Haan & Jante Parlevliet

Author:Jakob de Haan & Jante Parlevliet
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

The interplay of the ELB constraint and non-standard monetary policy measures can substantially reduce transitional costs (Fig. 6.1). In this case, by lowering the risk premium, non-standard monetary policy helps reducing private sector borrowing costs which stimulates domestic demand. In addition, the implied depreciation of the euro exchange rate boosts domestic exports. As a result, the downward pressure on inflation associated with the structural reform implementation and the implied real interest rate increase is more limited, resulting in the benefits of the reforms being realized more rapidly when the non-standard measures are applied. Of course, the non-standard measures are applied across the euro area and therefore give larger positive offsetting impacts in comparison to the unconstrained monetary policy simulation where the latter policy response is limited as it is only reacting to conditions in one country. Nevertheless, the benign impacts of the reforms when combined with the non-standard measures show that the asset purchase policies create very favourable conditions for implementing reforms.

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