Peter Karadi, Marek Jarociński, 03 October 2018

Central bank announcements simultaneously convey information about monetary policy and the economic outlook. This column uses changes in interest rate expectations and stock prices around the time of policy announcements of the Federal Reserve to disentangle the impact of news about monetary policy from that of news about the economic outlook. It finds that both pieces of information play a significant role in the dynamics of inflation and economic growth. Controlling for news about the economy provides a more accurate measure of the transmission of monetary policy.

Saleem Bahaj, Ricardo Reis, 25 September 2018

Swap lines between advanced economy central banks are a new and important part of the global financial architecture. This column analyses their role, from the perspective of central banks, in the transmission of monetary policy, and in the macroeconomic effects of policy. Results show that swap lines serve as liquidity facilities, that they put a ceiling on deviations from covered interest parity, and that they incentivise cross-border gross capital flows. 

Björn Richter, Moritz Schularick, Ilhyock Shim, 21 September 2018

Central banks have increasingly relied on macroprudential measures to manage the financial cycle, but their effects on the core objectives of monetary policy to stabilise output and inflation are largely unknown. This column shows that the output costs of changes in maximum loan-to-value ratios are rather small, especially in advanced economies. At the same time, such policies successfully reduce household and mortgage credit growth. The results suggest that central banks could be in a position to use macroprudential instruments to manage financial booms without interfering with the core objectives of monetary policy in a major way. 

Jon Danielsson, Robert Macrae, 12 September 2018

Financial policy is determined in multiple domains by separate government authorities. This column explores the hierarchical ranking of these domains and authorities. On top is the authority in charge of fiscal policy, followed by those running monetary, microprudential, and finally macroprudential policies. This ranking can cause conflicts in terms of policy effectiveness and legitimacy.

Michael McLeay, Silvana Tenreyro, 03 July 2018

The Phillips curve – a positive relationship between inflation and economic slack – is one of the building blocks of the standard macroeconomic models used for forecasting and policy advice in central banks. On the face of it, recent findings of a breakdown in this relationship would therefore have major implications for monetary policy. This column argues that these findings are perfectly consistent with a stable underlying Phillips curve. The reason is simple: monetary policy will typically seek to reduce output whenever inflation is set to rise above target, blurring the identification of the Phillips curve in the data.

Stephen Cecchetti, 25 June 2018

Though central banks do not seem concerned about being driven obsolete by cryptocurrencies, some are considering issuing digital currencies with similar technology. Stephen Cecchetti discusses three policy implications this might have, namely for restricting the illegal use of cash, allowing for negative interest rates, and improving financial access. All three are possible, but come with risk.

Peter Bofinger, 12 June 2018

The digitalisation of money has the potential to change traditional structures of the financial system. This column discusses four areas in which it may have an impact, and argues that while digitalisation will not erode the importance of central banks, banks could be massively challenged by new forms of intermediation. 

Antonio Fatás, Beatrice Weder di Mauro, 14 May 2018

Central banks are alert to the challenge of cryptocurrencies, and are contemplating reactions ranging from prohibiting private issuance to embracing such currencies. This column argues that the risks of introducing a central bank digital currency are high while the efficiency gains do not seem large. A more efficient system can be achieved via innovation in current payment infrastructure.

Michael Bordo, Eric Monnet, Alain Naef, 18 April 2018

Central bank cooperation has once again become a central issue amid the Global Crisis and the persistence of global imbalances, but there are few examples of successful cooperation schemes that survived the test of time. This column argues that the Gold Pool of 1961-1968 offers a unique example of integrated financial cooperation between major central banks. It failed not due to members freeriding, but because they did not have to abide by any rules-based policies to prevent imbalances.

David Miles, Ugo Panizza, Ricardo Reis, Ángel Ubide, 25 October 2017

Occasionally, inflation is stubborn. For many years it was hard to bring under control, but in the last decade has been low and stable. The latest Geneva Report on the World Economy studies the latest bout of stubbornness, asking why inflation has remained in such a narrow range. It shows that a large number of diverse shocks have hit developed economies during the last decade, which have more or less cancelled each other out. One of these 'shocks' has been monetary policy, which was skilfully used in response to wider macroeconomic events. Central banks, in other words, combined good policies and good luck. Next time, however, we may not be so lucky.

Michael Bordo, Pierre Siklos, 18 October 2017

The role of central banks in monetary policy and financial stability has changed radically over time. This examines the similarities and idiosyncrasies of ten central banks, and also considers how inflation might have looked had the central banks been around earlier, or had they adopted different strategies. While important differences between the narrative and statistical analyses of crises indicate that neither is sufficient on its own, small open economies appear to do comparatively well across the various crisis conditions, and inflation is almost always higher in the absence of an inflation target.

Paul Krugman, 04 October 2017

Where did policymakers got it right? In this video, Paul Krugman explains how central banks did the right thing, whereas austerity was imposed at the wrong time. This video was recorded at the "10 years after the crisis" conference held in London, on 22 September 2017.

Alex Haberis, Richard Harrison, Matt Waldron, 21 September 2017

In New Keynesian models, a promise to hold interest rates lower in the future has powerful effects on economic activity and inflation today. This result relies on a strong link between expected future policy rates and current activity, and also a belief that the policymaker will make good on the promise. This column argues that a tension between both of these creates a paradox – the stronger the expectations channel, the less likely it is that people will believe the promise in the first place. As a result, forward guidance promises are much less powerful than standard analysis suggests.

Takeshi Kimura, Teppei Nagano, 30 May 2017

While non-US entities pay dollar funding premiums in the FX swap market, the US earns profits on FX-hedged investments in non-US sovereign securities. This column argues that this new form of the ‘exorbitant privilege’ presents a modern version of the ‘Triffin dilemma’. If the distributional effect of US privilege becomes large enough to induce non-US entities to take excessive risk, the stability of the global financial system will come under threat. 

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. 

Domenico Lombardi, Pierre Siklos, 11 April 2017

Macroprudential policies increasingly lie at the heart of how central banks jointly manage of price and financial stability. However, consensus over best practice has yet to emerge. This column presents an improved indicator to measure individual economies’ macroprudential policy capacity. Improvements include incorporating the shadow banking sector, and distinguishing the types of institutions that wield authority. Results suggest that improvements continue to be made with respect to the development of an international financial system with improved resilience to shocks. 

John Muellbauer, 21 December 2016

The failure of the New Keynesian dynamic stochastic general equilibrium models to capture interactions of finance and the real economy has been widely recognised since the Global Crisis. This column argues that the flaws in these models stem from unrealistic micro-foundations for household behaviour and from wrongly assuming that aggregate behaviour mimics a fully informed ‘representative agent’. Rather than ‘one-size-fits-all’ monetary and macroprudential policy, institutional differences between countries imply major differences for monetary policy transmission and policy.

Roger Farmer, Pawel Zabczyk, 26 October 2016

Ben Bernanke famously quipped that monetary policy works in practice, but not in theory. This column bridges the gap between practice and theory in assessing how central banks can influence both of them by intervening in asset markets. To the extent that asset market volatility is driven by shifts in beliefs, the central bank should aim to eliminate that volatility by engaging in countercyclical unconventional monetary policy, which would end up reducing the risk premium.

Dirk Niepelt, 19 October 2016

The blockchain technology underlying Bitcoin and other cryptocurrencies is attracting growing interest. This column argues that if transactions facilitated by this technology become pervasive, it will have implications for the conduct (and success) of central bank monetary policy. Central banks should embrace the technologies that underpin cryptocurrencies, or risk being cut out from intermediation and surveillance and also risk payment service providers moving to other currency areas with an institutional environment that is more appealing for buyers and sellers.

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