Central Banks: Buying equities and corporate bonds in line with its objectives – Natixis

It would be legitimate for central banks to buy equities and corporate bonds, in the opinion of economists at Natixis.

Key quotes  

“When activity declines, monetary policy becomes far more expansionary to stimulate activity, but the decline in share prices and the rise in credit spreads go in opposite directions and cancel out the positive effect of the expansionary monetary policy.”

“We estimate that a 10% fall in share prices leads to a 0.7% fall in GDP in the United States and 0.3% in the euro zone.”

“The fall in share prices and the widening of credit spreads prevent an efficient monetary policy transmission, since they eliminate the positive effect of the expansionary monetary policy.” 

“It is in line with central bank' objectives to buy equities and corporate bonds with the objective of restoring normal monetary policy transmission and enabling expansionary monetary policies to stimulate the economy.”