Monetary policy

Giuseppe Ferrero, Mario Pietrunti, Andrea Tiseno, 21 March 2019

Dealing with uncertainty about the state of the economy is one of the main challenges facing monetary policymakers. In recent years there has been an extensive debate on the value of some of the deep parameters driving the economy, such as the natural rate of interest and the slope of the Phillips curve, estimates of which are quite uncertain. This column argues that when facing uncertainty on the structural relationship among macroeconomic variables, central banks should adopt a pragmatic and data-dependent approach to adjusting their monetary policy stance. 

Markus K Brunnermeier, Dirk Niepelt, 20 March 2019

Both proponents and opponents of central bank digital currency have suggested that it would fundamentally change the macroeconomy. This column questions this paradigm, arguing that the introduction of such a currency need not alter the allocation nor the price system. Concerns about central bank digital currency choking investment, cutting into banks’ profits, or increasing the likelihood of bank runs are misplaced.

Ester Faia, Vincenzo Pezone, 12 March 2019

Policymakers are concerned about effecting real change with monetary policy, particularly in the context of wage rigidity. This column uses extensive Italian data to analyse the extent to which wage rigidity induced by collective bargaining amplifies the effects of monetary policy. The volatility of stock market returns reacts more to monetary policy announcements when the average time left before the renewal of the employees’ collective agreement is large.

Emanuele Borgonovo, Stefano Caselli, Alessandra Cillo, Donato Masciandaro, Giovanni Rabitti, 12 March 2019

Alongside liquidity and store of value, is privacy an important attribute of money? Using laboratory experiments, the column shows that privacy matters, and increases the overall appeal of money. The experiments suggest that future competition between alternative currencies will depend on how the three properties are mixed.

Sayuri Shirai, 06 March 2019

Recent years have seen the emergence of digital currencies such as Bitcoin as potential private sector money. Central banks are also considering whether to issue their own digital tokens to enable decentralised verification of transactions while maintaining attractive cash-like features. This column lays out the four existing proposals for implementing central bank digital currency. Due largely to technical constraints, however, central banks in general have not found a compelling reason to issue their own digital currency.

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