Monetary policy

Jason Lu, Coen Teulings, 21 October 2016

The decline in real interest rates over the past several decades has been the subject of intense policy debate. This column argues that, with the current demographic profile of large older cohorts leading to a population that is disproportionately biased towards saving, we can expect real interest rates to remain low or negative for another 10 to 15 years. The only way for the Eurozone, in particular, to accommodate these excess savings may be to raise its sovereign debt levels.

Dirk Niepelt, 19 October 2016

The blockchain technology underlying Bitcoin and other cryptocurrencies is attracting growing interest. This column argues that if transactions facilitated by this technology become pervasive, it will have implications for the conduct (and success) of central bank monetary policy. Central banks should embrace the technologies that underpin cryptocurrencies, or risk being cut out from intermediation and surveillance and also risk payment service providers moving to other currency areas with an institutional environment that is more appealing for buyers and sellers.

Carlos Garriga, Finn Kydland, Roman Šustek, 16 October 2016

Central banks responded to the financial crisis by cutting policy rates to prevent deflation and curb the decline in economic activity, but these responses have been anything but temporary. This column explores whether the sticky price channel is still relevant in an environment of persistently low rates. Although the effectiveness of the sticky price channel is limited, monetary policy instead transmits through mortgage debt. The recent period of low rates and low inflation has redistributed income and consumption from savers to mortgage borrowers.

Alex Cukierman, 15 October 2016

The decline in long-term interest rates has nurtured the view of a persistent shift of the natural rate into negative territory. This column argues that existing estimates of the natural rate, based on the New Keynesian model, are likely to be biased downward. It makes a case for introducing long-term risky natural rates into the analysis of monetary policy, which could shed more light on the role of risk attitudes, the structure of financial institutions, and regulation in the determination of potential output and economic activity.

Ricardo Reis, 14 October 2016

Conventional economic theory predicts that, outside of a financial crisis, quantitative easing should have no effect on real outcomes or inflation. This column proposes two theoretical channels through which quantitative easing might also work in a fiscal crisis. In this case, quantitative easing can be a valuable tool because it can control the path of inflation over time and reduce the distortions to the credit flow in the economy.

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