Low for how long? Estimating the ECB’s “Extended Period of Time”

Tilman Bletzinger, Volker Wieland 05 September 2013

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The ECB Governing Council has given hints that it will keep rates low for long (see its May and June statements). On 4 July 2013, the Council went further embracing ‘forward guidance’ (Praet 2013, Woodford 2013).1

“The Governing Council expects the ECB interest rates to remain at present or lower levels for an extended period of time.”

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Topics:  Monetary policy

Tags:  ECB, forecast, monetary rule

A safe asset for Eurozone QE: A proposal

Luis Garicano, Lucrezia Reichlin 14 November 2014

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As Europe moves closer to deflation, the ECB is gradually inching towards outright quantitative easing (QE) – increasing the monetary base through purchases of government bonds (Draghi 2014). But undertaking such purchases confronts a problem. There is no Eurozone ‘government bond’ to purchase. Were the ECB to purchase the debt of all member countries, it would end up with a large amount of debt on its balance sheet, making it impossible for a country to default without triggering very large redistribution.

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Topics:  Macroeconomic policy Monetary policy

Tags:  Eurozone QE, Safe Market Bonds, ECB, quantitative easing, unconventional monetary policy, diabolic loop, doom loop, sovereign debt, safe assets, savings glut, risk weights, bank capital

After AQR and stress tests – where next for banking in the Eurozone?

Thorsten Beck 10 November 2014

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The ECB has concluded and published the results of a year-long painstaking process to go through the books of the 130 largest and most important banks of the Eurozone, adjusting balance sheets and testing the sensitivity of their capital position to two different scenarios, one of which includes a severe economic downturn. This exercise constitutes the entry point to the Single Supervisory Mechanism (SSM), where the ECB has direct supervisory responsibility for most of these 130 banks and indirect responsibility for the rest of the banks in countries that are members of the SSM.

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Topics:  Financial markets

Tags:  ECB, eurozone, banking union, stress tests, Asset Quality Review, forbearance, recapitalisation, balance sheets, leverage, bank resolution

Is the ECB doing QE?

Charles Wyplosz 12 September 2014

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The 4 September announcement by Chairman Mario Draghi has been greeted with enthusiasm by the markets and the media. It has been long awaited, and many believe that the ECB has finally delivered. This is not sure. The ECB intends to buy large amounts of securities backed by bank lending to households (mortgages) and to firms.

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Topics:  Exchange rates Financial markets Monetary policy

Tags:  quantitative easing, QE, monetary policy, unconventional monetary policy, ECB, securitisation, bank lending, Europe, eurozone, Subprime, stress tests, deleveraging, recapitalisation, depreciation, exchange rates, euro, central banking

To exit the Great Recession, central banks must adapt their policies and models

Marcus Miller, Lei Zhang 10 September 2014

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“Practical men…are usually the slaves…[of] some academic scribbler of a few years back” – John Maynard Keynes.

For monetary policy to be most effective, Michael Woodford emphasised the crucial importance of managing expectations. For this purpose, he advocated that central banks adopt explicit rules for setting interest rates to check inflation and recession, and went on to note that:

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Topics:  Global crisis Macroeconomic policy Monetary policy

Tags:  Taylor rule, forward guidance, great moderation, global crisis, Great Recession, quantitative easing, DSGE models, expectations, tapering, US, UK, Europe, eurozone, ECB, Bank of England, central banking, IMF, unconventional monetary policy

How to jumpstart the Eurozone economy

Francesco Giavazzi, Guido Tabellini 21 August 2014

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The mantra is that once again it is up to the ECB to save the Eurozone. Quantitative easing is the last policy tool available to jumpstart the Eurozone economy. The longer the ECB waits before starting to buy government bonds, the further away will the recovery be. This analysis, however, overestimates the power of monetary policy.

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Topics:  Europe's nations and regions Macroeconomic policy

Tags:  ECB, monetary policy, fiscal policy, quantitative easing, public debt, aggregate demand, Eurozone economy, stagnation

Revisiting the pain in Spain

Paul De Grauwe 07 July 2014

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The different macroeconomic adjustment dynamics in Spain – a member of a monetary union – and the UK – a stand-alone country – is stark. Paul Krugman popularised this contrast in his New York Times blog with the title “The Pain in Spain” (Krugman 2009, 2011), and commented on my own analysis in De Grauwe (2011).

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Topics:  Europe's nations and regions Global crisis Macroeconomic policy

Tags:  ECB, monetary policy, euro, EMU, Spain, monetary union, fiscal policy, UK, government debt, austerity, EZ crisis, Outright Monetary Transactions, currency depreciation

The euro crisis: Muddling through, or on the way to a more perfect euro union?

Joshua Aizenman 03 July 2014

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The short history of the Eurozone has been remarkable and unprecedented – the euro project has moved from the planning board to a vibrant currency within less than ten years. Otmar Issing’s optimistic speech in 2006 reflects well the buoyant assessment of the first decade of the euro – an unprecedented formation of a new currency without a state.1 Observers viewed the rapid acceptance of the euro as a viable currency and the deeper financial integration of the Eurozone and the EU countries as stepping stones toward a stable and prosperous Europe.

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Topics:  Institutions and economics International finance Monetary policy

Tags:  Germany, ECB, eurozone, inflation targeting, euro, institutions, Eurozone crisis, GIIPS

Saving the euro: self-fulfilling crisis and the ‘Draghi put’

Marcus Miller, Lei Zhang 26 June 2014

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In surveying eight centuries of financial folly, Reinhart and Rogoff (2009) observed that:

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Topics:  International finance Monetary policy

Tags:  ECB, eurozone, sovereign debt, financial crises, sovereign debt crisis, Outright Monetary Transactions, European sovereign debt crisis, self-fulfilling crises

Central bank transparency and committee deliberation

Stephen Hansen, Michael McMahon, Andrea Prat 20 June 2014

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Introduction

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Topics:  Monetary policy

Tags:  ECB, computational linguistics, central bank transparency, FOMC

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