Unwinding the Stimulus: The Rationale and Challenges of Balance Sheet Normalisation in the Euro Area
This study investigates the ECB’s unprecedented quantitative tightening, analysing its underlying rationale, implementation challenges, and financial market effects. QT seeks to restore policy space and reinforce institutional credibility, yet its transmission and optimal design remain uncertain. Event-study evidence indicates that QT announcements led to significant increases in sovereign yields, while effects on other asset classes were limited.