Monetary policy

Paolo Angelini, 12 April 2018

It has recently been argued that high non-performing loan stocks can limit banks’ lending ability, and thus impair the effectiveness of monetary policy. This column questions this claim and argues for a more nuanced view. It points to the lack of a serious theoretical analysis of the relationship between non-performing loan stocks and credit dynamics. Policy should focus on maximising the ‘cure rate’ rather than eliminating non-performing loans entirely.

Seppo Honkapohja, Kaushik Mitra, 09 April 2018

The Global Crisis and Great Recession dealt a blow to inflation targeting as a good monetary policy framework, and several prominent economists and central bankers have suggested that price-level targeting could help in bringing the economy back to normal. This column argues that although a newly established policy regime could well have low initial credibility, this may not be a problem as credibility can improve over time and lead to convergence toward the target equilibrium.     

John Williams, 08 April 2018

Macroeconomic models are an essential part of a monetary policymaker’s toolkit. In this column, taken from a VoxEU ebook, the author gives his personal assessment of the usefulness of DSGE models currently in use at the Federal Reserve and identifies three key issues that the next generation of DSGE models will need to address to be more relevant for policymakers.

Yasin Mimir, Enes Sunel, 03 April 2018

The Global Crisis originated in developed economies but was also a large shock to emerging market economies. Based on this event, this column argues that emerging market central banks should take into account domestic and external financial variables such as bank credit, asset prices, credit spreads, the US interest rate and the real exchange rate, not just effects on inflation and real economic activity. A stronger anti-inflationary stance is needed when monetary policy aims to maintain financial stability.

Karl Walentin, Andreas Westermark, 02 April 2018

The Great Recession has spawned a vigorous debate regarding the potential benefits of stabilising the real economy. This issue takes on additional importance as the current economic situation in some countries, including the US, seem to imply an interesting monetary policy trade-off between stabilising the inflation and the unemployment level. This column summarises research indicating that stabilising the real economy raises the long-run level of output.

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