Quantitative Easing by the ECB and the Federal Reserve

6 INTRODUCTION The great financial crisis erupted unexpectedly during the last decade in the USA and then, due to globalization, expanded around all the world, and so also in Europe, has represented a turning point, not only from an economic point of view, but also political, beyond which things did never come back as before. Due to the fact that the financial crisis, and the subsequent economic recession, has upset the economies and the banking systems of many countries, since 2007 the main Central Banks have taken measures so strong to face the crisis that what would be considered exceptional in normal times has become normal. Exactly because the use of these tools has become daily, and given that such maneuvers directly affect from several years the political and the economic situation of many countries around the world, it has become extraordinarily important understand them in order to make them more and more useful in the future, if they will be still necessary. It is for this reason that I will dedicate three chapters to describe in details the recipes utilized by the two most important Central Banks, the Fed and the ECB, to cope with this great financial crisis. Before to know which recipes, or monetary policies, the two Central Banks employed for this aim, it is important to understand what they consist of. This is the reason because of which, in the Chapter 1, I will describe first of all the general framework in which they operate to obtain certain objectives. Such framework is constituted by a hierarchy of targets, characterizing the transmission mechanism of monetary policy, based on how much all the variables are related to the final aims. Then, I will focus on the evaluation of the monetary policy effectiveness, bound to some dimensions, and to complete the issue I will describe several strategies pursued to maximize it. Only after have described all the instruments utilized by the policymakers, I will mark a boundary between the conventional measures, pursued in normal times, and those unconventional, implemented in time of crisis. The demarcation line flows on whether for the Central Banks it is possible to continue to manage the key short-term interest rates, by lowering it more until enter in negative territory, where now is situated the lower bound.