An analysis regarding the transition from quantitative easing to quantitative tightening in the Euro Area

Abstract

In the context of accelerating inflation growth in 2021-2022 in the Euro Area, the ECB is considering tightening monetary policy, i.e. moving from a quantitative easing (QE) monetary policy that has been practiced for almost a decade in the Euro Area to a quantitative tightening (QT) monetary policy. This article examines what this transition entails as QE provides an easing of financial conditions on a broader scale by reducing long-term interest rates, while the adoption of QT should have the opposite effect, although not necessarily of the same magnitude, i.e. reducing the size of a central bank’s asset balance sheet.

Keywords

• monetary policy
• quantitative tightening
• quantitative easing
• euro area