Monetary policy

Marco Annunziata, 23 January 2015

The European Central Bank has just launched full-fledged quantitative easing. This column argues that the ECB’s watershed decision highlights both the strengths and the persistent vulnerabilities of the Eurozone. The limited-risk-sharing provision flags the need for greater fiscal union; and governments should use the respite that QE provides to launch much-needed structural reforms.

Valerie Ramey, Sarah Zubairy, 23 January 2015

There is no consensus among economists about the size of the multiplier of government purchases. It is not clear either how multipliers vary with the state of the economy. This column presents new evidence on this issue using large historical data set from the US. The findings suggest that there is no evidence that fiscal multipliers differ by the amount of unemployment or the degree of monetary accommodation. 

Laura Alfaro, Anusha Chari, Fabio Kanczuk, 22 January 2015

Capital controls are back in fashion. This column discusses new firm-level evidence from Brazil showing that capital controls segment international financial markets, reduce external financing, and lower firm-level investment. They disproportionately affect small, non-exporting firms, especially those more dependent on external finance. This suggests that macro-finance models focusing on aggregate variables are missing an important dimension by abstracting from firm-level heterogeneity. 

Emmanuelle Maincent, Andras Rezessy, Mirco Tomasi, 22 January 2015

Shale gas exploitation in the US has changed the competitiveness landscape for energy intensive industries. Prices are only part of the picture. We propose an indicator – ‘Unit Energy Cost’ – reflecting productivity and the evolution of energy prices per unit consumed. The good performance of European industries can be explained by their relatively low energy intensity (high energy productivity). The US and China are catching up – this calls for renewed efforts to limit price growth, and further improvements in intensity performance.

Dirk Niepelt, 21 January 2015

Recent experience with the zero lower bound on nominal interest rates, and the use of high-denomination notes by criminals and tax evaders, have led to revived proposals to phase out cash. This column argues that abolishing cash may be neither necessary nor sufficient to overcome the zero lower bound problem, and would severely undermine privacy. Allowing the public to hold reserves at central banks could reduce the need for deposit insurance, although the transition to the new regime and the effects on credit supply must be carefully considered.

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