What option prices tell us about the ECB's unconventional monetary policies

a column by Stan Olijslagers, Annelie Petersen, Nander de Vette,and Sweder Van Wijnbergen for VOX: CEPR’s Policy Portal

The decade since the Global Crisis has seen central banks employ a range of monetary policy tools.

This column draws two lessons from the unconventional monetary policy measures employed during the European sovereign debt crisis.

First, central banks should communicate clearly – and with sufficient detail – in times of heightened market stress to lower tail risk perceptions in financial markets.

Second, policies aimed at changing the relative supply within different asset classes have an impact on perceived crash risk, while measures aimed at easing financing costs of commercial banks do not.

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