Speech by Isabel Schnabel, Member of the Executive Board of the ECB, at an event organised by Columbia University and SGH Macro Advisor

New York, 27 March 2023

On 1 March, the ECB started quantitative tightening (QT) after eight years of balance sheet expansion.^[1] At the peak in 2022, the Eurosystem held monetary policy assets corresponding to around 56% of euro area GDP. This was substantial both from a historical perspective and in international comparison (Slide 2, left-hand side).

The first wave of balance sheet expansion was a response to the low-inflation environment prevailing in the aftermath of the euro area sovereign debt crisis. Between 2014 and 2016 headline inflation ran persistently below our target of 2%, averaging just 0.3% (Slide 2, right-hand side).^[2]

As the key policy rate had already been lowered into negative territory in 2014 and was approaching the effective lower bound, the ECB started employing “unconventional” monetary policy tools. It offered banks a…