Robert McCauley, Catherine R. Schenk, 12 April 2020

A major source of vulnerability during global financial crises, both in the past and at present, is the severe shortage of US dollar funding around the world. This necessitates extensive central bank cooperation, in the form of central bank swap lines and other innovative solutions, to relieve the strain on dollar liquidity. This column evaluates the close cooperation between the Fed, BIS and other central banks in response to a strained eurodollar market in the 1960s, and compares this to other episodes in the 1990s, 2008 and 2020. The wide system of swaps that existed in the past amounted to a global financial net aimed at managing dollar liquidity and stabilising exchange rates.

Olivier Blanchard, Jean Pisani-Ferry, 10 April 2020

The extraordinary operations that are under way in most countries in response to the COVID-19 shock have raised fears that large-scale monetisation will result in a major inflation episode. This column argues that so far, there is no evidence that central banks have given up, or are preparing to give up, on their price stability mandate. While there are obviously some reasons to worry, central banks are doing the right thing and the authors see no reason to panic.

Yosuke Takeda, Masayuki Keida, 17 April 2020

Communication strategies are increasingly seen as an important tool for central bankers to guide expectations. This column applies statistical natural language processing algorithms to press conferences given by two different governors of the Bank of Japan during a time without any formal changes in institutional arrangements for communication policy at the Bank. Communication strategies are found to differ vastly across the two governors, with one governor focusing on the topic of ‘discretion’ and the other on the topic of ‘policy goals’.

Sony Kapoor, Willem Buiter, 06 April 2020

COVID-19’s economic impact on crumbling GDPs, collapsing tax revenues and ballooning fiscal deficits will be much larger than what has been reported thus far. Any hesitation in throwing everything but the kitchen sink at the health, employment, state aid and financial rescue interventions that are needed will literally kill citizens and destroy the economy. To combat COVID-19, central banks, including the ECB, must cross the Rubicon of monetary financing and immediately transfer the 20%-30% of GDP this will cost into fiscal coffers.

Lukas Hoesch, Barbara Rossi, Tatevik Sekhposyan, 07 March 2020

The information channel of monetary policy theory – whereby economic agents revise their beliefs after an unexpected monetary policy announcement not only because they learn about the current and future path of monetary policy, but also because they learn new information about the economic outlook – can potentially explain the puzzle of output increasing after a contractionary monetary policy shock. This column argues, however, that the information channel has disappeared in the US, perhaps due to the improved communication strategies implemented by the Federal Reserve.

Jon Danielsson, Robert Macrae, Andreas Uthemann, 06 March 2020

Artificial intelligence, such as the Bank of England Bot, is set to take over an increasing number of central bank functions. This column argues that the increased use of AI in central banking will bring significant cost and efficiency benefits, but also raise important concerns that are so far unresolved.

Ugo Albertazzi, Francesca Barbiero, David Marques-Ibanez, Alexander Popov, Costanza Rodriguez d'Acri, Thomas Vlassopoulos, 25 February 2020

The response of major central banks to the Global Crisis has rekindled the debate on the interactions between monetary policy and financial stability. This column reviews empirical evidence on how monetary policy affects bank stability, focusing on unconventional monetary policy measures deployed by the ECB during the crisis. It argues that by stabilising the economy and averting a systemic crisis, these measures helped shore up stability, with the positive effects outweighing the adverse spillovers on banks’ intermediation capacity and risk-taking. However, such measures may need to be complemented with counterbalancing actions that go beyond monetary policy. 

Simone Arrigoni, Roland Beck, Michele Ca' Zorzi, Livio Stracca, 24 February 2020

Governments are increasingly confronted with the task of preserving the positive effects of increased global integration while also managing their manifold side effects. This column looks at the effects of globalisation on inflation and financial stability and the role for central banks. It concludes that central banks are far from immune from the forces of globalisation and should continue to evolve and reassess their role and instruments in a changing world.

Andrew Haldane, 07 February 2020

Is regional inequality a problem that central banks should worry about? Andy Haldane of the Bank of England tells Tim Phillips why he thanks the answer is yes: but why we also need to think about what, and how, we measure.

Markus K Brunnermeier, Jean-Pierre Landau, 15 January 2020

Central banks have been called on to contribute to fighting climate change. This column presents a framework for thinking about the issue and identifies some major trade-offs and choices. It argues that climate should be a major part of risk assessments and that capital ratios could be used in a proactive way by applying favourable regimes to ‘green’ loans and investments. It also suggests that central banks may want to take several climate change-related aspects into account when designing and implementing monetary policies. However, the central bank should retain absolute discretion to interrupt any action if its first-priority objective – price stability – were to be compromised.

Anna Samarina, Nikos Apokoritis, 15 January 2020

Monetary policy frameworks have evolved since the global crisis. The column investigates the changes for 14 advanced economy central banks. Banks are defining lower, more narrow inflation targets. Transparency and commitment have been enhanced, and the monetary policy toolkit has been expanded.

Guillaume Bazot, Eric Monnet, Matthias Morys, 02 November 2019

The gold standard (1880s-1913) is usually portrayed as the exemplary case of the total submission of central banks’ monetary policy to the constraints of international finance.  This column challenges this view by showing that central banks’ balance sheets stood as a buffer between their respective domestic economies and global financial markets. By contrast, autonomy was much more limited in the US, a country with fixed exchange rates but no central bank before 1913.

Philippe Andrade, Jordi Galí, Hervé Le Bihan, Julien Matheron, 01 October 2019

How to adjust to structurally lower real natural rates of interest is a challenging but inescapable issue for central bankers. Using simulation and US data, this column studies how changes in the steady-state natural interest rate affect the optimal inflation target. It finds that starting from pre-crisis values, a 1 percentage point decline in the natural rate should be accommodated by an increase in the optimal inflation target of about 0.9 to 1 percentage point. It also discusses alternatives to adjusting the target, such as non-conventional monetary policies. 

Tobias Adrian, Tommaso Mancini-Griffoli, 09 September 2019

New entrants are vying to occupy the space once used by paper bills. This column, part of the VoxEU debate on the future of digital money, proposes a simple framework to make sense of who is attempting to pry our wallets open. It argues that the adoption of new digital means of payment could be rapid and bring significant benefits to customers and society, but that the risks must be tackled with innovative approaches and heightened collaboration across borders and sectors. One approach is for central banks to engage in a public–private partnership with fintech firms to provide a safe, liquid, and digital alternative to cash: synthetic central bank digital currency.

Patrick Bolton, Stephen Cecchetti, Jean-Pierre Danthine, Xavier Vives, 03 June 2019

While the decade since the Global Crisis has seen clear improvements in financial regulation and supervision, there is still work to be done in several crucial areas, and political constraints may bite.This column introduces the first report in a new series on ‘The Future of Banking’, which tackles three important areas of post-crisis regulatory reform: the Basel III agreement on capital, liquidity and leverage requirements; resolution procedures to end ‘too big to fail’; and the expanded role of central banks with a financial stability remit.

Roger Farmer, Giovanni Nicolò, 20 May 2019

The economies of many countries are operating close to full capacity, but unemployment and inflation are both low. Using data from the US, UK and Canada, this column compares differences in the macroeconomic behaviour of real GDP, the inflation rate and the yields on three-month Treasury securities in the three countries. It shows that the Farmer monetary model, closed with a belief function, outperforms the New Keynesian model, closed with the New Keynesian Phillips curve. The data fit the multiple equilibria emphasised in the Farmer model well, rather than the mean-reverting processes assumed by the New Keynesian model. 

Pierpaolo Benigno, 26 April 2019

Cryptocurrencies have attracted the attention of consumers, policymakers and the media. This column investigates whether they can jeopardise the primary function of central banks, namely, controlling inflation and economic activity. Currency competition can succeed in calming inflation and preventing the sort of manipulation of interest rates and prices to which governments have historically been prone. But currency competition may also lead to government money losing the function of medium of exchange, which could be risky and lead government currency into further troubles. 

David Martinez-Miera, Rafael Repullo, 27 March 2019

Various factors have been advanced as possible causes of the build-up of risks leading to the Global Crisis, and multiple policies have been put forward to address them. This column discusses the effectiveness of monetary policy and macroprudential policy in responding to the build-up of risks in the financial sector. While both policies are useful, macroprudential policy is more effective in terms of financial stability and can lead to higher welfare gains.

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.

Ashoka Mody, Milan Nedeljkovic, 14 January 2019

The ECB’s actions in the wake of the Global Crisis have been described as hesitant, relative to other central banks. Based on analysis of financial markets' response to the ECB's interventions during the euro crisis, this column argues that central bank interventions are effective if they clearly signal a commitment to reinvigorating the economy and if they address the source rather than the symptom of financial stress. The ECB did not follow these principles, limiting its ability to improve financial market sentiment. 


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