For example, for the euro area, see Gambetti and Musso (2017), “The macro eco nomic impact o f the ECB’s expanded asset purchase pro gramme (APP)”, ECB Working Paper No 2075. Fo r the United States, see Weale and Wieladek (2016), “What are the macro eco no mic effects o f asset purchases?”, Journal of Monetary Economics (79): 81-93. And lastly, fo r the United Kingdo m, see Kapetanio s et al. (2012), “Assessing the eco no my-wide effects o f quantitative easing”, The Economic Journal, Vo l. 122, pp. 316-347. 7  Co stain, Nuño and Thomas (2022), “The term structure o f interest rates in a hetero geneo us mo netary union”, Working Paper No 2223, Banco de España. 4  over time and across asset classes -, it played an additional role to reduce fragmentation within the euro area and thus ensure a smooth transmission of the single monetary policy. Let me now turn to the TLTROs. In 2014 the ECB launched TLTROs. Unlike the (non-targeted) longer-term refinancing operations (LTROs) that preceded them, these ECB loans were specifically targeted at encouraging euro area banks to expand their lending to households and firms. Provided they met certain lending targets, banks received TLTRO loans under very advantageous conditions. 8 In this respect, TLTROs are complementary to asset purchases. While asset purchases aim to reduce the funding costs of those agents (such as sovereign and large corporate issuers) that fund themselves through bonds, TLTROs are intended to increase households’ and (smaller) firms’ access to bank credit.
Second, it seems reasonable to wait and observe potential ripple effects of TLTRO III repayments in bond markets before starting the bond portfolio run-off, as it will allow us to assess the effective impact of balance sheet reduction on financial conditions. After first allowing markets to absorb significant TLTRO III repayments, the normalisation of the ECB’s balance sheet could be followed by ending full reinvestment of the APP portfolio. As announced by President Lagarde last month, we will decide on the key principles of the reduction of our APP portfolio at our December monetary policy meeting. And why we should end APP reinvestments before PEPP reinvestments? In my opinion, a “first-in-first-out” staggered approach is preferable for at least two reasons. First, PEPP reinvestments remain an important line of defence against (pandemic-related) fragmentation episodes, so they are potentially pledged for reallocation across jurisdictions while the lasting vulnerabilities caused by the pandemic continue to pose a risk to the smooth transmission of our monetary policy. Second, we previously declared that PEPP reinvestments will not end up until at least the end of 2024, while our forward guidance on APP reinvestments was open-ended. We have clearly stated our intention to continue APP reinvestments for an extended period of time past the date when we started raising the key ECB interest rates. Moreover, our balance sheet policy will depend too on the operational framework that we adopt for the foreseeable future.