Transmission of unconventional monetary policy: A European experience

Following the global financial crisis, the European Central Bank adopted unconventional monetary policy measures to combat persistent low inflation and address the constraints of the zero lower bound. This thesis examines the transmission mechanisms of these tools, specifically Quantitative Easing, Negative Interest Rate Policy, Targeted Longer-Term Refinancing Operations, and forward guidance, in the European context. By reviewing recent empirical literature, the thesis assesses whether unconventional methods alter the standard transmission channels and the overall efficacy of monetary policy. The findings indicate that while the monetary policy stance generally remains effective, transmission efficiency can be reduced compared to conventional measures and partially relies on novel channels for some tools. The analysis highlights the critical role of bank heterogeneity, finding that bank lending behavior can differ under negative rates depending on the bank funding structure. Furthermore, evidence supports the existence of a dynamic "reversal rate," where prolonged negative rates or significantly negative rates erode bank profitability and eventually become contractionary.