Policy Article

ECB stepping on the brake(s) - monetary tightening in an abundant reserve system


  • Sonnenberg
  • N.
Publication Date

Confronted with a historic inflation surge, the ECB steps on the brake(s). While interest rate hikes are its primary tool, unconventional tools are also adjusted to strengthen the brake intensity. Quantitative tightening will reduce the stock of bonds in a slow process. The change from a scarce to an abundant reserve system will prevail. In contrast to previous monetary tightening cycles, in an abundant reserve system huge interest expenses result in central bank losses and fiscal costs for the coming years.

Kiel Institute Expert



Key Words

  • ECB
  • Euro area
  • monetary policy