## Euro Area Policies: Selected Issues

_IMF Staff Country Reports, July 19, 2023_

## Source details

**Canonical URL:** [Euro Area Policies: Selected Issues](https://www.imf.org/en/publications/cr/issues/2023/07/18/euro-area-policies-selected-issues-536727)

## Other formats

- [Markdown version](/en/publications/cr/issues/2023/07/18/euro-area-policies-selected-issues-536727/index.md)
- [Structured JSON version](/en/publications/cr/issues/2023/07/18/euro-area-policies-selected-issues-536727/index.json)
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## Bibliographic details
- Published: July 19, 2023
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400248733.002

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### Executive summary and scope
- This Selected Issues paper highlights quantitative tightening (QT) by the European Central Bank (ECB).
- It uses evidence from the literature on the impact of central bank bond purchases and sales on bond yields, and the monetary policy stance, to outline a roadmap for reducing the Euro system’s bond holdings.
- The current tightening cycle provides an opportunity to revisit the ECB’s balance sheet policy.
- With inflation running above target, the monetary accommodation provided by the ECB’s bond holding is no longer necessary.
- The paper concludes that the ECB’s short term policy rates should be the main choice for adapting the monetary policy stance to changing circumstances and QT should proceed in a gradual, predictable manner as outlined by the ECB.

### Key findings
- Quantitative tightening (QT) is central to the paper’s analysis and recommendations regarding the ECB’s balance sheet policy.
- Literature evidence is used to link central bank bond purchases and sales to bond yields and overall monetary stance.
- The paper emphasizes that, given inflation running above target, the accommodation from the ECB’s bond holdings is no longer necessary.
- The current tightening cycle is characterized as an opportunity to revisit and adjust the ECB’s balance sheet policy.

### Policy recommendations and roadmap
- Primary instrument: ECB short term policy rates should be the main choice for adjusting the monetary policy stance to changing circumstances.
- QT approach: QT should proceed in a gradual, predictable manner as outlined by the ECB.
- Balance sheet objective: Reduce the Euro system’s bond holdings following the roadmap informed by the literature on policy impacts on yields and monetary stance.

### Publication and metadata
- Publication date: July 19, 2023
- Pages: 18
- Volume: 2023
- Issue: 265
- Series: Country Report No. 2023/265
- DOI: https://doi.org/10.5089/9798400248733.002
- Stock No: 1EUREA2023002
- ISBN: 9798400248733
- ISSN: 1934-7685
- Subjects: Central bank policy rate, Financial institutions, Financial services, Financial statements, International organization, Monetary policy, Monetary stance, Public financial management (PFM), Securities, Unconventional monetary policies
- Keywords: app portfolio, bond supply net of ECB, C. Policy consideration, Central bank policy rate, ECB balance sheet, ECB Policy rate, Financial statements, Monetary stance, Securities, Unconventional monetary policies

*Source: International Monetary Fund, Euro Area Policies: Selected Issues, IMF Staff Country Reports No. 2023/265 (July 19, 2023).*

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## Content in this bundle

- **Euro Area Policies: Selected Issues; IMF Country Report No. 23/265; June 29, 2023**
  - [Euro Area Policies: Selected Issues; IMF Country Report No. 23/265; June 29, 2023 (Markdown version)](/-/media/files/publications/cr/2023/english/1eurea2023002.pdf.md){rel="alternate" type="text/markdown"}
  - [Euro Area Policies: Selected Issues; IMF Country Report No. 23/265; June 29, 2023 (PDF)](/-/media/files/publications/cr/2023/english/1eurea2023002.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/cr/issues/2023/07/18/euro-area-policies-selected-issues-536727_