Teunis Brosens, 24 May 2017

Much progress has been made in recent years to improve the financial integration of the Eurozone.  This column argues that while banking union promotes stability, markets remain fragmented and consumers aren’t yet fully enjoying the fruits of integration. With Brexit on the horizon, it is up to the remaining EU member states to foster competition and efficiency in financial services by completing the banking union, harmonising national regulation, and accelerating the realisation of a true capital markets union. 

Mélika Ben Salem, Bárbara Castelletti, 15 May 2017

In the aftermath of the Global Crisis, sovereign yield differentials have increasingly widened among European developed countries. Financial markets seem to discriminate among peripheral economies requiring a higher risk premium than is justified by fiscal factors only. This column discusses the causes of this phenomenon. In peripheral countries, it is not due simply to the lack of fiscal discipline, but to a combination of both internal and external imbalances.

Henrike Michaelis, Volker Wieland, 12 May 2017

In recent speeches, Federal Reserve Chair Janet Yellen and ECB President Mario Draghi have attributed the Fed’s and the ECB’s low interest rate environment to low equilibrium rates rather than to Fed or ECB policies. This column argues that estimates of these equilibrium rates are extremely uncertain and sensitive to technical assumptions, and thus should not be used as key determinants of the policy stance. But if used nevertheless, a consistent application together with associated output estimates call for a tightening of the policy stance. 

Fredrik Andersson, Lars Jonung, 08 May 2017

Inflation-targeting central banks commonly fail to hit their official inflation targets, so targets are combined with a tolerance band which is either implicit or explicit. Taking the Swedish Riksbank as an example, this column argues that adopting an explicit tolerance band would better communicate to the public the central bank’s lack of full control over the rate of inflation and thus foster public confidence in monetary policy, and it would also increase the central bank’s ability to stabilise the economy. The width of the band can be derived from the historical inflation outcome. 

Robert Kollmann, Beatrice Pataracchia, Rafal Raciborski, Marco Ratto, Werner Roeger, Lukas Vogel, 27 April 2017

The Global Crisis led to a sharp contraction and long-lasting slump in both Eurozone and US real activity, but the post-crisis adjustment in the Eurozone and the US shows striking differences. This column argues that financial shocks were key determinants of the 2008-09 Great Recession, for both the Eurozone and the US. The post-2009 slump in the Eurozone mainly reflects a combination of adverse aggregate demand and supply shocks, in particular lower productivity growth, and persistent adverse shocks to capital investment linked to the poor health of the Eurozone financial system. Mono-causal explanations of the persistent slump are thus insufficient. Adverse financial shocks were less persistent for the US.

Thorsten Beck, 24 April 2017

Nine years after the onset of the Global Crisis, the problem of non-performing assets is still acute in the Eurozone. This column takes stock of the different proposals to deal with the issue. It argues that a Eurozone-level asset management company can resolve bank fragility and spur economic recovery, but warns that lack of political will and legal barriers can impede the creation of such an agency. 

Jean-Pierre Danthine, 12 April 2017

In this column, Jean-Pierre Danthine, a co-author of "Making Sense of Subsidiarity: How Much Centralization for Europe?", revisits the report nearly 25 years on from its publication. He examines the main themes of the report and shows how such areas as centralisation/decentralisation, subsidiarity, and macroeconomic stabilisation have played out over the years since the report was published. He concludes that the report was both prescient and, at the same time, represents a view from the past of the 'road not taken'.

Enrico Perotti, 04 April 2017

The members of the Eurozone are diverse in terms of their institutional quality. This column outlines the redistributive effects created by the rigid structure of a monetary union next to its direct effects on monetary credibility, and highlights the general equilibrium benefits that core countries draw from it and the cost paid by the productive sector in ‘weaker’ countries. Europe faces a clear challenge, but the success of the transition to the banking union suggests that collective efforts towards institutional evolution can succeed.

Tamim Bayoumi, Barry Eichengreen, 27 March 2017

Asymmetric aggregate supply and demand disturbances across its regions prevent the smooth functioning of a currency union. This column argues that the disturbances in peripheral regions of the US show more symmetry with those in the anchor region than is the case for the Eurozone. Moreover, disturbances to the GIPPS, which previously were in Europe’s periphery, have become more correlated with disturbances to the anchor (Germany) compared to other Eurozone countries. Hysteresis operating via the financial sector may provide an explanation for this development.

Roberto De Santis, 16 March 2017

French sovereign spreads have risen in recent months, coinciding with debate over the euro ahead of the country’s presidential elections in May. Italian sovereign spreads have been rising since the beginning of 2016. This column argues that investors are not pricing a break-up of France from the Eurozone. Most likely, they are pricing the possibility that the newly elected French government will not have enough supremacy to undertake important economic reforms. Market perception of redenomination risk in Italy, on the other hand, is rising slowly. 

Benoit Mojon, 04 March 2017

In the last two decades, there has been substantial co-movement of US and Eurozone interest rates. This column shows that the ECB’s unconventional monetary policy has largely succeeded in decoupling nominal interest rates in the Eurozone from those in the US since 2014. This has been especially true for rates of up to five years’ maturity since the rise in US interest rates following the election of Donald Trump. 

Marco Onado, 21 February 2017

European banks have not recovered from the Global Crisis, in part due to heavy provisions for non-performing loans. This column argues that a comprehensive approach to the issue in Europe could address market inefficiencies and reduce bad loans to bearable levels. The establishment of a European scheme to securitise non-performing loans should form one of the next steps towards recovery.

Charles Wyplosz, 17 February 2017

The IMF has just released its self-evaluation of its Greek lending, in which it admits to many mistakes. This column argues that the report misses one important error – reliance on the Debt Sustainability Analysis – but notes that the IMF’s candour should be a model for the other participants in the lending, namely, the European Commission and the ECB.

Felix Hufeld, Ralph Koijen, Christian Thimann, 30 January 2017

Despite the importance of insurance, discussions about the macroeconomic role and the risks of insurance markets have been surprisingly limited. This column explores some of the key theoretical and conceptual questions still unanswered in this field, and suggests that a two-fold approach combining a focus on individual firms and an activity-based approach across the sector is needed to tackle systemic risk within the insurance industry.

Ansgar Belke, Clemens Domnick, Daniel Gros, 19 January 2017

A high correlation of business cycles is usually seen as a key criterion for an optimum currency area. This column argues that the elasticity with which countries react to the common cycle is equally important. A country with a non-unitary growth elasticity relative to the common area will experience cyclical divergences at the peak and trough of the common cycle. Despite being characterised by highly-correlated business cycles, the Eurozone suffers from widely differing amplitudes. 

Ian Bright, Senne Janssen, 13 January 2017

With growth and inflation in Europe remaining low, the idea of helicopter money is slowly gaining traction with politicians and economists alike. This column presents the results of a survey that asked people how, if they were to receive an extra €200 per month to do with as they chose, they would use the money. There was broad support for the policy among respondents, but only about one in four said they would spend most of the money. The findings suggest that a larger impact might be achieved if instead the money were given to the government to finance projects.

László Andor, Paolo Pasimeni, 13 December 2016

Since its inception, the Eurozone has had lower growth and higher unemployment rates than other regions, which suggests the need for new fiscal instruments. This column argues for a stabilisation instrument based on unemployment as the driving indicator. This unemployment benefit scheme coud take the form of a basic common European scheme, or a reinsurance fund supporting national systems. In either case, the instrument wouldn’t be a panacea, and the key obstacle to implementation would be political. 

Elisa Gamberoni, Claire Giordano, Paloma Lopez-Garcia, 13 December 2016

An efficient allocation of inputs across firms is a necessary condition to boost TFP growth. This column presents evidence that in large Eurozone economies, capital misallocation trended upwards in the period 2002-2012 while labour misallocation dynamics were flatter. Uncertainty and credit market frictions were strongly associated with the observed developments in capital misallocation, whereas the overall deregulation in the product and labour markets contributed to dampening input misallocation dynamics. 

Giorgio Barba Navaretti, Giacomo Calzolari, Alberto Pozzolo, 12 December 2016

In the years since the Global Crisis, there has been substantial public opposition to taxpayer-funded bailouts of financial institutions. Reflecting this sentiment, a cornerstone of the EU’s post-crisis resolution framework is that losses be borne by private investors and creditors. This column surveys some of the details that need to be worked out before such bail-in measures can work. Effective implementation requires clear identification of the limits to bail-in. In particular, for such measures to be successful, bailout cannot be ruled out by assumption.

Matthieu Chavaz, Marc Flandreau, 01 December 2016

Between 1870 and 1914, 68 countries – both sovereign and British colonies – used the London Stock Exchange to issue bonds. This column argues that bond prices and spreads in this period show that the colonies’ semi-sovereignty lowered credit risk at the price of higher illiquidity risk, and further worsened liquidity by attracting investors that rarely traded. Parallels between Eurozone and colonial bonds suggest that the pricing of liquidity and credit in government bond markets is an institutional phenomenon.

Pages

Events