NThe outcome of the conflict over the critical judgment of the German Federal Constitutional Court on bond purchases by the European Central Bank (ECB) is still pending. In the meantime, however, all publications on the bond programs, their effects and side effects are naturally being followed with particular attention. ECB Executive Board member Isabel Schnabel once again detailed in two interviews this week that the central bank believes that the proportionality of its bond purchases has long been adequately examined, “in the preparation, adoption and use of the PSPP bond program and other monetary policy measures ”.
If the Federal Constitutional Court now requests a justification for proportionality, this is problematic: not only because the European Court of Justice, which is responsible for the ECB, has already established the legality of the program; but also because the ECB, as an independent institution, cannot follow the instructions of national authorities. But of course you want to avoid a situation in which a national central bank like the Bundesbank cannot participate in the purchase programs.
Commerzbank and the Deutsche Bundesbank have also recently dealt with bond purchases in two publications. They put different aspects in the foreground. In a discussion paper for the Bundesbank, Martin Mandler and Michael Scharnagl dealt with an estimate of the effects of the bond purchase programs on individual euro countries. Martin Schubert, ECB analyst at Commerzbank, on the other hand, pursued the aspect that the effects of bond purchases might be generally overestimated by many; and asks what could result from a balance of proportionality.
How much impact do the programs have on inflation?
The Bundesbank paper examines the effects of the APP asset purchase program on real gross domestic product, consumer prices and corporate credit in the four largest euro area economies, Germany, France, Italy and Spain. A special economic model is used for this, a “Bayesian vectorautoregressive multi-country model”, or BVAR for short. Put simply, the effects of bond purchases are estimated using two scenarios, one with and one without bond purchases.
The results are interesting. In all four countries in the survey, there had been positive effects on output, i.e. economic performance. However, the estimated effects on price levels and inflation were generally less than the effects on real economic growth. “Our tests for the different effects on the different countries showed that the bond purchase program had the strongest effects on the price level in Spain,” the authors write. The impact on economic performance was weakest in France, while the impact on price levels was least in Italy.