What option prices reveal about the ECB’s unconventional monetary policies
The decade because the Global Crisis has seen central banks hire a selection of monetary policy tools. This column draws two lessons from the unconventional monetary policy measures employed through the European sovereign debt crisis. First, central banks should communicate clearly – and with sufficient detail – in times of heightened market stress to lessen tail risk perceptions in financial markets. Second, policies targeted at changing the relative supply within different asset classes impact on perceived crash risk, while measures targeted at easing financing costs of commercial banks usually do not.