Non-standard monetary policy measure - How the ECB’s pandemic emergency purchase program (PEPP) affected Finnish industries

Abstract

The COVID-19 pandemic disrupted lives and businesses across the globe from the start of the year 2020. The ongoing pandemic made countries adopt unprecedented health security measures and restrictions, which in turn reduced the already declining aggregate demand. Alongside the traditional monetary policies, central banks adopted non-conventional monetary policies to promote economic activity.

ECB launched a new asset purchase programme in March 2020, the PEPP. The programme followed the doctrine of quantitative easing – instead of purchasing short-term securities similar to in open market operations, the programme primarily focused on long-term securities. This is believed to expand economic activity by increasing the liquidity in the financial system.

Furthermore, quantitative easing has also been used in previous economic crises by central banks, for example during the global financial crisis. Prior research suggests that quantitative easing has been temporally effective in increasing liquidity in financial systems, lowering interest rates on the securities under purchase, increasing aggregate demand and lowering negative impacts on real GDP and inflation. The quantitative analysis done in this paper showed that the PEPP purchases have had seemingly a negative impact on the industry turnover numbers in Finland.