Patrick O'Brien, Nuno Palma, 12 March 2022

Special wartime monetary policies have successfully been used on numerous occasions throughout history. This column describes how the Bank of England played a decisive role in supporting the British economy during the French Wars of 1793-1815. Rapid increases in military expenditure during wartime were supported by liquid and low-inflation government financing as well as reputable management of debt levels. In this light, current sanctions on the Bank of Russia could lead to long-term changes to Russia’s economy and political system as well. 

Enrique Martínez García, Rachel Doehr, 06 March 2022

Since 2021, the Federal Reserve has been signalling an earlier lift-off and a steepened federal funds rate path to rein in inflation. This column assesses evidence from the US of the signalling and uncertainty effects of forward guidance announcements. At the zero lower bound, forward guidance news shocks can have significant and asymmetric impacts, and historical evidence suggests the importance of clear communication to effectively restrain inflation. The Fed’s evolving guidance on lift-off and the removal of accommodation therefore pose more difficult trade-offs than were previously understood. 

Thorsten Beck, 04 February 2022

Since the GFC the UK has used innovative macroprudential and monetary policy tools to maintain stability. But the UK is an international financial centre, and so does this policy framework create spillovers in other places, and do influences from elsewhere affect stability in the UK? Yes and yes, says Thorsten Beck.

Read more about this research and download the free DP:
Beck, T, Lloyd, S, Reinhardt, D and Sowerbutts, R. 2022. 'Macro-financial policy in an international financial centre: the United Kingdom experience since the global financial crisis'. CEPR

Dirk Niepelt, 14 December 2021

The CEPR Research and Policy Network on FinTech and Digital Currencies has published an ebook on the design and implications of central bank digital currency. Dirk Niepelt, leader of the RPN, explains why the topic is on the minds of many central banks — and the issues on which economists agree and disagree.

Download the eBook:
Dirk Niepelt, Central Bank Digital Currency: Considerations, Projects, Outlook, CEPR, 2021

Dirk Niepelt, 24 November 2021

Central bank digital currency has become a major preoccupation of central bankers. In a new CEPR eBook, academics and policymakers review what we know about the economic, legal, and political implications, discuss current projects, and look ahead. While consensus on the ‘right’ CBDC choices remains elusive, common perspectives emerge. First, money, banking and payments are ripe for upheaval, with or without CBDC. Second, the key risk of CBDC is unlikely to be bank disintermediation – privacy, politics, and information may be more critical. Third, the use case for CBDC must be clarified country by country, and may not exist. Fourth, parliaments and voters should have the final say.

Emanuele Borgonovo, Stefano Caselli, Alessandra Cillo, Donato Masciandaro, Giovanni Rabitti, 28 October 2021

With the development of new forms of money such as cryptocurrencies and central bank digital currencies, the attention paid to their role as a store of privacy is increasing. This column asks whether privacy is relevant in shaping the demand for these currencies. The results of laboratory experiments show that anonymity does indeed matters and increases the overall appeal of a medium of payment. This effect is stronger for risk-prone individuals. 

Luke Bartholomew, Paul Diggle, 12 August 2021

Central banks are increasingly considering their role in meeting climate objectives. Often, they justify this by arguing that climate considerations directly impact on their primary objectives of price and financial stability. This column argues that a stronger case is that the urgency of climate risks is such that standard neutrality-based objections to central bank involvement in economic allocation are obviated. Indeed, neutrality-based arguments look especially weak when it is realised that neutrality is essentially impossible for central banks to achieve.

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.

João Ayres, Pablo Andrés Neumeyer, Andrew Powell, 19 July 2021

The ‘right’ monetary policy response to COVID-19 has depended on any number of factors for central banks across the world. This column argues that some central banks in Latin American and Caribbean went beyond accommodating the increased demand for liquidity, inducing monetary injections that then returned through excess bank reserves and sterilisation liabilities for those central banks that fixed an interest rate, and through sales of international reserves for those that favoured stable exchange rates. The authors also outline some of the risks confronting central banks for the months ahead.

Stephen Cecchetti, Kim Schoenholtz, 08 July 2021

Central banks are thinking about whether they should substitute publicly issued digital currency for the bank-issued digital money that people use every day. How this plays out can profoundly reshape the financial system and make it less stable. This column argues that we don’t need CBDC to solve financial system problems, but with China already headed down the CBDC road, perhaps the best hope is that central banks will all proceed very slowly and stop well short of universal, elastically supplied, interest-bearing digital currency. 

Brunello Rosa, Alessandro Tentori, 26 June 2021

Digital currencies are becoming increasingly present on both research and policy agendas, including for central banks. This column explores the geopolitical role of central bank digital currencies, with a particular focus on China. It argues that such currencies could be useful as a means for central banks to record transactions in an increasingly cashless economy and could help improve central banks’ monetary transmission. Nonetheless, the risk of cyber-attacks should not be overlooked.

Bill English, Ángel Ubide, 04 June 2021

How well has monetary policy coped with the challenge of Covid-19?Central banks get good grades in a new VoxEU ebook. But Bill English and Angel Ubide warn Tim Phillips that success today may lead to problems in future.

Download the new eBook here: Monetary Policy and Central Banking in the Covid Era

Bill English, Kristin Forbes, Ángel Ubide, 03 June 2021

As Covid-19 spread in early 2020, many central banks were still struggling to boost inflation. The abruptness and speed of the economic deterioration, the sharp increase in market volatility, and the blinding uncertainty over the impact of the pandemic motivated a central bank reaction that was unprecedented in terms of size, speed and scope. A new CEPR eBook summarises the responses by sixteen central banks from both advanced and emerging economies – with chapters written by senior central bank officials and economists in each of the countries to explain the actions taken. While responses varied across countries, there are several common threads: the size, speed and breadth of the responses; the reliance on a more multidimensional set of tools; and the ability of emerging markets to behave more like advanced economies.

Stephen Cecchetti, Paul Tucker, 01 June 2021

Since the Global Crisis, the size of central bank balance sheets has grown significantly. Traditional goals of price and financial stability are insufficient for assessing the success of modern central banking operations. This column introduces a new framework for categorising and understanding central bank balance sheet operations. Monetary policy decisions are separated from facilities for lender of last resort, market maker of last resort, providing selective credit, and ensuring emergency government financing. To maintain legitimacy and accountability, central banks should formally distinguish these operations by clearly setting out their purposes, objectives, and constraints. 

Patrick Bolton, Harrison Hong, Marcin Kacperczyk, Xavier Vives, 25 May 2021

The Covid-19 pandemic and recession have reinforced the need to evaluate the economic and financial impact of natural disasters, providing a pointer to the damaging effects that climate change may induce. This column introduces the third report in the Future of Banking series from the IESE Business School and CEPR, which explores the ways in which natural disaster risks are different from more familiar forms of financial risk – and how banks, asset managers andcentral banks are beginning to grapple with these risks. The authors call for a combination of public interventions and private sector mitigation strategies to reduce the long-term implications of climate-related events.

Asger Lau Andersen, Niels Johannesen, Mia Jørgensen, José-Luis Peydró, 19 April 2021

Who gains – and by how much ­– when central banks soften their monetary policy regime is a key policy question. This column discusses new evidence on the distributional effects of monetary policy based on detailed administrative household-level data. The authors show that the gains from lower policy rates exhibit a steep income gradient, with the increases in income, wealth, and consumption modest at the bottom of the income distribution and highest at the top. 

Joshua Aizenman, Hiro Ito, Gurnain Kaur Pasricha, 08 April 2021

Facing acute strains in the offshore dollar funding markets during Covid-19, the Federal Reserve implemented measures to provide US dollar liquidity. This column examines how the Fed reinforced swap arrangements and established a ‘financial institutions and monetary authorities’ repo facility in response to the crisis. Closer pre-existing ties with the US helped economies access the liquidity arrangements. Further, the announcements of the liquidity expansion facilities led to appreciation of partner currencies against the dollar, as did US dollar auctions by foreign central banks. 

Yasin Mimir, Enes Sunel, 05 April 2021

Central banks in emerging economies deployed asset purchases for the first time to respond to the Covid-19 shock. Initial studies have found quantitative easing reduced long-term bond yields in these economies without creating bouts of currency depreciation. This column argues that asset purchases ease financial conditions in emerging economies by curbing capital outflows enabled by stronger bank balance sheets upon the asset intermediation by the central bank. If asset purchases cause a de-anchoring in inflation expectations, their effectiveness diminishes. Counterfactual policy experiments reveal that bond yield reductions from asset purchases during the pandemic could have persisted only under large-sized programmes that are representative of advanced economies.

Alexander Dietrich, Gernot Müller, Raphael Schoenle, 22 March 2021

Climate change has emerged as a major challenge for central banks, although its extent and the immediate consequences are highly uncertain. This column uses a survey of over 10,000 US consumers to show that irrespective of when and how climate change actually plays out, what matters for monetary policy is how people expect it to play out. Central bankers ignore the expectations channel of climate change at their peril.

Gene Ambrocio, Andrea Ferrero, Esa Jokivuolle, Kim Ristolainen, 06 March 2021

Central banks often have inflation targets at the centre of their monetary policy regimes. This column presents survey data from 613 leading economists to explore their views on these inflation targets and wider policies within their countries of residence. The results suggest that maintaining the prevailing inflation target (for central banks that have one) has more support than changing it does. But more respondents are pessimistic about central banks’ ability to meet these targets, particularly in the euro area.

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