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William Lindquist

fully or partially sterilized by various means. The generally smaller size and the use of some sterilization have set these APPs apart from the large-scale asset purchases, or quantitative easing (QE), adopted by the larger central banks since the GFC. Have APPs achieved their aims in European EMs? They were successful in alleviating market dysfunction in the immediate aftermath of the global shock in March and April of 2020—a key shared reason for their deployment. Using event studies, we find some evidence of easing of liquidity pressures and a reversal in surge

Mr. Marco Arena, Mr. Rudolfs Bems, Mr. Nadeem Ilahi, Mr. Jaewoo Lee, William Lindquist, and Mr. Tonny Lybek
Several emerging market central banks in Europe deployed asset purchase programs (APPs) amid the 2020 pandemic. The common main goals were to address market dysfunction and impaired monetary transmission, distinct from the quantitative easing conducted by major advanced economy central banks. Likely reflecting the global nature of the crisis, these APPs defied the traditional emerging market concern of destabilizing the exchange rate or inflation expectations and instead alleviated markets successfully. We uncover some evidence that APPs in European emerging markets stabilized government bond markets and boosted equity prices, with no indication of exchange rate pressure. Examining global and domestic factors that could limit the usability of APPs, in the event of renewed market dysfunction we see a potential scope for scaling up APPs in most European emerging markets that used APPs during the pandemic, provided that they remain consistent with the primary objective of monetary policy and keep a safe distance from the risk of fiscal dominance. As central banks in the region move towards monetary policy tightening, the tapering, ending, and unwinding of APPs must also be carefully considered. Clear and transparent communication is critical at each step of the process, from the inception to the closure of APPs, particularly when a large shock hits and triggers a major policy shift.
International Monetary Fund. Monetary and Capital Markets Department

Systemic risks have been substantially reduced following unprecedented policy actions and nascent signs of improvement in the real economy. We appear now to be embarking on the road to recovery. Credit, however, remains strained, while household and financial sector balance sheet pressures and ongoing market dysfunctions remain drags on the recovery. This underscores the need for adopted policies to be more fully implemented, while others need to be fine-tuned or extended to ensure that confidence is restored further and credit channels are reopened. Equally