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Don’t Worry About ECB Stimulus Even After Bond Buying Stops

Oxford Economics calculations suggests steady balance sheet from ECB will keep bond yields down
The stars of the European Union (EU) sit on banners flying outside the European Central Bank (ECB) headquarters stands in Frankfurt, Germany.
Photographer: Krisztian Bocsi/Bloomberg

As the European Central Bank brainstorms scenarios for winding down its 2.3 trillion-euro ($2.8 trillion) asset-purchase program, there is what may sound like a chicken-and-egg problem to solve. 

It goes as follows: when the central bank buys bonds and its balance sheet grows, is it the former or the latter that gives policy makers more bang for their buck? And what happens when the balance sheet stops growing and the ECB just continues reinvesting income from maturing bonds as it has pledged to do? Will the stimulus continue to work?