The global financial crisis has shattered the confidence of many established principles of monetary policy and financial supervision. This column argues that the two should not remain separate, and maps out the major challenges faced by their complementary implementation.
Otaviano Canuto, Matheus Cavallari, 21 May 2013
Marco Annunziata, 12 February 2013
Economists and policymakers are increasingly concerned that central-bank independence is being threatened. This column argues that central banks are not losing their independence, but that their room for manoeuvre is being eroded by a lack of structural reforms and fiscal adjustment. The financial crisis has caused mission creep, pushing central banks well beyond their comfort zones and as the time comes to pull back, independent monetary policy could still be powerless against fiscal dominance.
David Miles, 17 January 2013
There is a view that banks are using more equity capital – and relatively less debt – to finance the assets they hold, creating substantial costs so great as to make more capital unfeasible. This column argues that these costs are exaggerated, but that the benefits of having banks that are far more robust are likely to be large. The argument that equity capital is costly is more an admittance that banks cannot convince people to provide finance in the knowledge that their returns will inevitably share in the downside and the upside. Worryingly, it is as if banks cannot play by the same rules as other enterprises in a capitalist economy. After all, capitalists are supposed to use capital.
Nicolas Magud, Evridiki Tsounta, 16 January 2013
The ‘neutral’ rate is the real interest that is consistent with stable inflation and narrow output gaps. This column discusses the various estimation techniques and presents estimates for a range of Latin American nations. No methodology is fully correct: central banks must still make a subjective judgement, but econometrics can significantly help to inform it.
Markus K Brunnermeier, Hans Gersbach, 20 December 2012
As governments and the EU wring their hands over banking reform, a fragile system remains in place. This column argues that the ECB’s current role undermines its independence. What the Eurozone needs to reduce undue forbearance - while preserving the ECB's independence - is a ‘diarchy’ in which both a newly built Restructuring Authority and the ECB have the power to trigger bank-restructuring.
Christian Daude, 10 December 2012
Latin American central banks are facing new challenges in the form of unprecedented levels of uncertainty and exchange rate appreciation pressures. This column, focusing on Brazil, Chile, Colombia, Peru and Mexico, argues that there is an overestimation of the potential output in several Latin American economies, a lack of an explicit policy direction from central banks, and lacklustre frameworks for macroprudential policy. Although inflation targeting has served countries in Latin America well, significant risks remain.
Ryan Banerjee, Sebastiano Daros, David Latto, Nick McLaren, 20 August 2012
A central banker's toolkit these days must include a way of estimating the effect of quantitative easing purchases on government bond yields. With markets savvier than ever in anticipating quantitative easing purchases, estimating the effect has become more difficult. This column by four Bank of England economists introduces a novel empirical approach.
Richard Wood, 18 August 2012
Central banks are running out of conventional tools, and the effectiveness of unconventional ones like QE are being questioned. More radical solutions are being considered. This column sets out the case for monetisation of budget deficits.
Manmohan Singh, Peter Stella, 02 July 2012
The world of credit creation has shifted over recent years. This column argues this shift is more profound than is commonly understood. It describes the private credit creation process, explains how the ‘money multiplier’ depends upon inter-bank trust, and discusses the implications for monetary policy.
Michael Burda, 17 May 2012
The EZ crisis reveals critical flaws in the Eurozone’s design. This column argues that failing to abolish national central banks left the door open for national interests to interfere with the natural workings of the financial system and Hume’s adjustment mechanism. This flaw – and the omission of a European Banking Authority with real teeth – will come back to haunt Europe in the months and years to come.
Manmohan Singh, Peter Stella, 07 May 2012
Are central banks printing vast quantities of money? This column explains how money-multiplier economics (central banks create reserves that allow commercial banks to create money) no longer holds. Today, non-bank financial institutions play a pivotal role in money/liquidity creation, but hold no reserves. Their lending depends on “private reserves”, mainly highly liquid government securities. Creating more ‘public’ reserves by buying such ‘private’ reserves doesn’t trigger money creation – it just substitutes among reserve types. Open-market purchases only create money if they swap a monetary base for assets that are no longer accepted at full value as collateral in the market.
Joshua Aizenman, Kenta Inoue, 19 March 2012
The patterns of gold holding remain a debatable topic at times when the relative price of gold has appreciated while the global economy has experienced recessionary effects. This column studies the curious patterns of gold holding and trading by central banks from 1979 to 2010. It suggests that a central bank’s gold position signals economic might, and gold retains the stature of a ‘safe haven’ asset at times of global turbulence.
Willem Buiter, 16 January 2012
The global crisis inaugurated a new era for central banks in the advanced economies, when their conventional role as interest rate-setters and lenders and market makers of last resort expanded. Central banks have become the custodians of stability for financial markets – a role for which they lack both democratic accountability and political legitimacy, argues Willem Buiter in DP8780. He decries the new “perverse division of labour” between central banks and fiscal authorities and appeals for a reassessment of this pathological arrangement.
Kateřina Šmídková, Jan Zapal, Roman Horváth, 13 November 2011
Does the publishing of voting records improve the transparency of monetary policy? This column argues voting records indeed contain informative power about future monetary policy but only if there is sufficient independence in voting across board members and if the signals about the optimal policy rate are noisy.
Marcus Miller, John Driffill, 27 September 2011
Just what on earth is going on in the global economy? Rather than get caught up in the hysteria, this column says the answers are best found by looking through the pages of history and dusting down some old textbooks.
Mark Mink, 31 August 2011
While central bank liquidity support is used on a large scale to combat the instability of the banking sector, this column argues that the prospect of receiving such support might well have been one of the causes of the instability. In particular, it shows that the provision of liquidity support stimulates banks to engage in various forms of risk-taking, and to do so in a procyclical way.
Clemens Jobst, 19 July 2011
The debate over TARGET balances and whether there is an ongoing stealth bailout in the Eurozone has attracted attention from top economists and journalists in the past month. This column argues that the reason why the arguments keep dragging on is the lack of a clear framework for the discussion, something this column aims to provide.
Axel Leijonhufvud, 25 January 2011
The shell game is a roadside con as old as civilisation. This column argues that the same swindle is being performed on a massive scale at the expense of the unsuspecting taxpayer. It says that, with their near zero interest rates, central banks are effectively subsidising the banking sector – with barely a pea passed on to the public.
Max Bruche, Javier Suarez, 07 January 2011
During the global crisis central banks have undertaken unconventional measures that some commentators claim go beyond their mandate. This column focuses on central banks intervening in the money markets as a middle man. It argues that such actions can be welfare improving, but are unlikely to be fiscally neutral, thus raising questions about whether they should be left to a central bank.
John Cochrane, 07 December 2010
Last month, the US Federal Reserve announced a new quantitative easing programme, in which it will inject money into the economy by buying up to $600 billion in long-term government bonds. This column argues that now is not the time to be buying back long-term debt. Given exceptionally low long-term rates, the US government should be issuing it instead.