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The ECB’s performance during the crisis: Lessons learned

Ashoka Mody, Milan Nedeljkovic, (2019), “The ECB’s performance during the crisis: Lessons learned”, VoxEu.org, 14 January

Dollar liquidity was a very particular need. By alleviating the dollar shortage, the Fed made a significant contribution to the euro area’s stabilisation. In contrast, the ECB’s euro liquidity to banks, by its very design, did little to create confidence in economic prospects. While the liquidity did bring temporary calm, it increased the risk-taking incentives of banks. The active, stimulative measures lacked clarity of strategy. Hence, markets had no reason to expect that such measures would continue, particularly since they often seemed to react to bad news rather than establish a forward-looking purpose. Not surprisingly, they did little to help.

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