Buying into new ideas: The ECB’s evolving justification of unlimited liquidity

Lea Steininger, Casimir Hesse

Publikation: Working/Discussion PaperWU Working Paper

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In 2012, Draghi put an end to rising euro area sovereign bond yield spreads by resolving to do 'whatever it takes'. The crisis rhetoric and institutional practices of unlimited liquidity have since become commonplace, as countermeasures to recent market turmoil show. This paper sets out to explain how and why 'unlimited liquidity' ideas moved to the ECB's center of economic analysis during the euro crisis. Previous work fails to decipher that the ideational shift was highly anomalous when viewed against German ordoliberalism or scholarly support for 'expansionary austerity'. Addressing this relative neglect in other accounts, we draw on qualitative text analysis and expert interviews to argue that this shift was due to norm entrepreneurs who capitalized on the uncertainty of the crisis. We employ constructivist arguments to identify four scoping conditions that account for the ascendance of 'unlimited liquidity': an indicative reference, credibility, institutional positioning, and -- as an extension to the literature -- intellectual sensitivity. Our analysis suggests that the euro crisis changed economic ideas, and fundamentally remodels the constructivist framework for studying monetary policy in crisis times.
HerausgeberWU Vienna University of Economics and Business
PublikationsstatusVeröffentlicht - März 2024


ReiheDepartment of Economics Working Paper Series

WU Working Paper Reihe

  • Department of Economics Working Paper Series