Monetary policy

Vítor Constâncio, 25 April 2016

Since the Crisis, macroprudential policy has become a necessary complement to monetary policy. The ECB is striving to be a major contributor to the growing body of thought about the role and instruments of this new policy area. In this column, Vice-President Vítor Constâncio introduces the new bi-annual ECB Macroprudential Bulletin aimed at widening awareness about the Bank's macroprudential policy mandate, enhancing transparency, and informing about current ECB discussions and approaches in the field.

Guido Tabellini, 24 April 2016

In order to preserve financial integration and stability, the Eurozone needs to build elements of a common fiscal policy. This column, first posted 12 February 2016, discusses how this could be done. It proposes the creation of a European Fiscal Institute, modelled on principles similar to those used for the ECB. Such an establishment would require treaty and constitutional reforms in member states, which would not be politically feasible in the short term.

James Cloyne, Clodomiro F. Ferreira, Paolo Surico, 21 April 2016

Monetary policy has significantly heterogeneous effects on private consumption, which depend on the household's debt and balance sheet position. This column suggests that households with mortgage debt behave in a liquidity-constrained manner, while those without are far less sensitive to movements in interest rates. Though the direct channel of monetary transmission – i.e. the movement in interest cash flows – also affects the expenditure of mortgagors, most of the aggregate effect comes via the stimulus to the income of all housing tenure groups.

Alex Cukierman, 16 April 2016

Both the US and the Eurozone reacted to the Global Crisis by injecting liquidity and loosening monetary policy. This column argues that despite the similarities in the behaviour of bank credit, the behaviour of bank reserves has been quite different. In particular, while US bank reserves have been on an uninterrupted upward trend since Lehman’s collapse, EZ bank reserves have fluctuated markedly in both directions. At the source, this is due to differences in the liquidity injections procedures between the Eurozone and the Fed.

Claudio Borio, Enisse Kharroubi, Christian Upper, Fabrizio Zampolli, 14 April 2016

Some analysts claim that secular stagnation is responsible for the disappointing post-crisis economic performance. This column provides a different explanation that points to an unsuspected villain: the misallocation of resources (in our case, labour) during the pre-crisis financial boom and the long shadow it has cast post-crisis. The findings draw on an empirical analysis covering more than 20 advanced economies over 40 years. They add strength to the view that the economy has been struggling with the legacy of a major financial boom and bust that has left long-lasting scars on the economic tissue. They also raise broader questions about the interpretation of hysteresis effects, the need to incorporate credit developments in the measurement of potential output and the design of policy more generally, and the role and effectiveness of monetary policy in the short and long term.

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