Lucrezia Reichlin, Klaus Adam, Warwick J. McKibbin, Michael McMahon, Ricardo Reis, Giovanni Ricco, Beatrice Weder di Mauro, 03 December 2021

Michael Ehrmann, Alena Wabitsch, 29 November 2021

Monetary policy issues are discussed on social media by experts and also increasingly by non-experts, presenting a challenge to central banks using social media to communicate with their target audiences. This column analyses ECB-related tweets and finds that more subjective views and tweets expressed in stronger language are more likely to get retweeted, thereby shaping the tone of the virtual discussions. Both experts and non-experts are responsive to ECB communication – in most cases, information is simply relayed on Twitter, but there are also instances of controversial discussions being triggered. 

Ewa Stanisławska, Maritta Paloviita, 26 November 2021

The responsiveness of longer-term inflation expectations to shorter-term economic developments plays an important role in inflation dynamics. Using the new ECB Consumer Expectations Survey conducted in the middle of the Covid-19 pandemic, this column explores how consumers adjust their medium-term inflation views in response to changes in short-term inflation expectations and inflation perceptions. Covid-19 contributed to an increase in consumer inflation expectations, but greater trust in the ECB is associated with more muted responsiveness of inflation expectations.

Marco Buti, 23 November 2021

The policy response to Covid-19 in Europe avoided mistakes made a decade earlier. But what should the fiscal and monetary policy framework be after the pandemic? Marco Buti, author of a new CEPR policy insight on this topic and the book The Man Inside about how Europe coped with recent crises, talks to Tim Phillips.

Download the CEPR policy insight: 

Buti, M and Messori, M, Euro area policy mix: From horizontal to vertical coordination, CEPR Policy Insight No 113.

Register for the launch of the book The Man Inside: A European Journey through Two Crises, Wednesday 24 November 2021, 16:00 GMT

Margherita Bottero, Camelia Minoiu, José-Luis Peydró, Andrea Polo, Andrea Presbitero, Enrico Sette, 16 November 2021

Negative interest rates are a major innovation in monetary policy. This column uses data on bank-firm lending relationships and firms’ employment and investment decisions to show that after the introduction of negative interest rate policy by the ECB: (1) more exposed banks show a relatively higher increase in the supply of corporate loans; (2) this expansion of credit by more exposed banks is concentrated among low-capital banks, which rebalance their assets by increasing their share of loans to smaller and ex ante riskier firms; and (3) the increase in credit supply by more liquid banks is associated with sizeable firm-level real effects.

Claudio Borio, Piti Disyatat, 10 November 2021

Monetary and fiscal policies, as deeply entwined functions of the state, face a looming dual long-term challenge. This column argues that they need to regain policy headroom to be able to effectively fulfil their macro-stabilisation role. And once these safety margins are restored, the policies need to remain firmly within a ‘corridor of stability’, in which neither can endanger the other or push it to the limit. In addition, navigating the path ahead will require a mix of ‘opportunistic normalisations’ and structural reforms to raise long-term growth. 

Thorsten Beck, 30 October 2021

Viral Acharya, Simone Lenzu, Olivier Wang, 29 October 2021

Banking crises of the past several decades have encouraged regulatory forbearance towards banks combined with accommodative monetary policy. This column argues that such policies, if used too aggressively, lead to ‘zombie lending’ – the extension of new credit or prolonging of existing loans to low-productivity firms. While such policies may stabilise the economy in the short run, they risk transforming transitory shocks into phases of delayed recovery and permanent productivity and output losses. 

Charles Goodhart, Manoj Pradhan, 25 October 2021

The current mini-surge in inflation is forecast to return to central bank targets towards the end of 2022, or shortly thereafter. However, there is also a risk of inflation remaining persistently high for longer. This column discusses the implications of such a contingency for central banks and monetary policy. The authors warn that sudden policy reversals could lead to severe downturns in financial markets and significantly damage public sector balance sheets. Instead, they call on central banks to develop concrete plans for dealing with persistently higher inflation, with a particular focus on their balance sheet policies in a world of rising nominal interest rates. 

William A. Allen, Jagjit Chadha, Philip Turner, 23 October 2021

,

CEPR and the Bank of England are delighted to invite you to the upcoming online speech:
 

International trade, global supply chains,
and monetary policy

Silvana Tenreyro, Member of the Monetary Policy Committee, Bank of England

 

Moderated by:
Beata Javorcik, Chief Economist, European Bank for Reconstruction and Development, and CEPR

Monday 25 October

09h00 - 10h15 EDT (New York)
14h00 - 15h15 BST (London)
15h00 - 16h15 CEST (Paris)

Supply chains have dominated the news in recent months. Shortages of food, petrol, and materials have made people acutely aware of how the goods and services they rely on every day reach them.
 
In this speech, moderated by Professor Beata Javorcik, Professor Silvana Tenreyro will explain what supply chains are, why they matter, and analyse their growing importance to the global economy over recent decades. She will also discuss the implications supply chain disruptions have for policy making. Her talk will first look at trade policy, where the benefits of re-shoring business are being assessed against the benefits of diversifying supply chains. Next, it will address the role supply chain disruptions have on inflation, and how monetary policy can respond.
 
Silvana Tenreyro is a member of the Bank of England's Monetary Policy Committee, Professor in Economics at the London School of Economics and a Research Fellow of CEPR.

Beata Javorcik, Chief Economist at the EBRD and Programme Director of CEPR's International Trade and Regional Economics Programme Area, will introduce and moderate the session.

Register online: https://cepr-org.zoom.us/webinar/register/3916348134916/WN_nmwbKIHCSxqnD...

Davide Porcellacchia, 18 October 2021

Policy rates in advanced economies are unusually low. This phenomenon has competing effects: low rates harm bank profits by squeezing interest margins, but also boost the value of long-term assets held by banks. Using a standard banking model, this column determines the policy rate level at which these two forces cancel out, or the ‘tipping point’. Past this tipping point, the net effect of low rates on bank capital is negative. Applying the model to the US economy, the tipping point in August 2007 is estimated as a policy rate of 0.55%.

Marco Buti, Marcello Messori, 13 October 2021

The way European policymakers solve the policy mix trilemma of asymmetric fiscal rules, no central fiscal capacity and constrained monetary policy in the post-pandemic economy will define the resilience of the euro area in the face of future shocks and the transition to a more sustainable growth model. In a new CEPR Policy Insight, the authors argue that moving to a structured vertical coordination between national and EU budgets would help ensure an adequate fiscal stance and avoid the overburdening of the single monetary policy.    

,

Finance, money and climate change

As fighting climate change becomes the world’s top post-pandemic priority, financial intermediaries, their regulators and central banks have all been called to contribute. A major new research report exploring the scope and limits of green finance and the possibility of ‘greening’ monetary policies will be launched at an online panel discussion hosted by Europe’s leading economic policy journal on Thursday 21 October 2021 at 17:00 CEST.

Markus Brunnermeier of Princeton University and CEPR, who has co-authored the study with former top French and international policy-maker Jean-Pierre Landau of Sciences Po, will present a new framework for thinking about finance, money and climate change – identifying the trade-offs and key choices to be made.

His presentation will be followed by a discussion with Anna Breman, deputy governor of Sveriges Riksbank, the central bank of Sweden, and Adam Tooze, Kathryn and Shelby Cullom Davis Professor of History at Columbia University, moderated by Tim Phillips, presenter of CEPR’s Vox Talks Economics podcast.

For more information visit the Economic Policy journal website.

Register now

Sulkhan Chavleishvili, Stephan Fahr, Manfred Kremer, Simone Manganelli, Bernd Schwaab, 05 October 2021

When managing financial imbalances, macroprudential policymakers face an intertemporal trade-off between facilitating short-term expected growth and containing medium-term downside risks to the economy. To help assess this trade-off, this column proposes a risk management framework which extends the well-known notion of growth-at-risk to consider the entire predictive real GDP growth distribution. The authors use a novel empirical model fitted to euro area data to study the direct and indirect interactions between financial vulnerabilities, financial stress, and real GDP growth, highlighting a number of key findings.

Emilia Garcia-Appendini, Steven Ongena, 14 September 2021

Firms may face bottlenecks forcing them to cut activity and adjust prices when monetary tightening financially constrains their business partners. This column focuses on firms producing intermediate goods in the US to show how monetary policy can have ‘ripple effects’ along supply chains through input-output linkages involving financially constrained firms. These transmission channels of monetary policy may be especially relevant in the post-Covid context of higher corporate leverage, significant supply chain disruptions, and inflationary pressures.

Matteo Benetton, Alessandro Gavazza, Paolo Surico, 09 September 2021

In the aftermath of the 2007–09 financial crisis, central banks have sought to stimulate the economy through new policies aimed at revamping credit and housing markets. This column examines the effects of the Bank of England’s Funding for Lending Scheme, which offers cheap medium-term loans to UK lenders. Mortgage lenders actively price-discriminate across borrowers using two-part tariffs which split the origination fee from the interest rate. This increased after the introduction of the scheme, implying a stronger transmission of monetary policy to credit markets and the real economy.

Elena Bobeica, Benny Hartwig, Christiane Nickel, 20 August 2021

The initially muted reaction of euro area inflation to the recent recession suggests that the Phillips curve is flat or may have flattened during the pandemic. This column argues that the assessment of the Phillips curve has become more complicated due to numerous confounding factors. It discusses evidence that underlying inflationary pressures have been dampened by the build-up of slack, and that models accounting for tail events reveal more stable Phillips curve parameters. Despite the many confounding factors, it seems that the Phillips curve is still at play – even if it is hard to pin down precisely.

Ethan Ilzetzki, 18 August 2021

By most measures, income inequality has increased in the UK in the past several decades. The July 2021 CfM survey asked the members of its UK panel to evaluate the impact of central banks on inequality and whether the Bank of England should consider income and wealth distribution in its monetary policy decisions. The majority the panel thinks monetary policy has only a small impact on wealth and income inequality. A larger majority of nearly 90% of the panel believes that inequality should play a minimal role or no role in the Bank of England’s monetary policy decisions.

Lucrezia Reichlin, Giovanni Ricco, Matthieu Tarbé, 05 August 2021

Monetary policy has fiscal implications since its effect on interest rates, inflation and output relaxes or tightens the general government inter-temporal budget constraint. Inflation dynamics is the result of both monetary policy and the fiscal response to it via the adjustment of the primary deficit. This column discusses estimates of the fiscal responses to monetary policy in the euro area. It shows that the more modest impact of unconventional monetary policy easing on inflation, if compared with the impact of conventional easing, can be explained by a more modest increase in the primary deficit in the former case.

Pages

Events

CEPR Policy Research