Lucrezia Reichlin, 29 July 2022

There have been many shocks to the Eurozone over the past 15 years: the financial crisis, the debt crisis, Covid, and the current war in Ukraine. Interviewed at CEPR’s June 2022 Paris Symposium, Lucrezia Reichlin tells us about her recent research into how best to use monetary and fiscal tools to respond to these and future shocks.

Lucrezia Reichlin, Giovanni Ricco, Anshumaan Tuteja, 14 April 2022

The ECB has to decide not only on the timing and speed of exit from monetary easing, but also on the sequence. This column uses an empirical model to show that a short-term interest rate tightening in the euro area has undesired effects on output, inflation, and stock market prices if it is coupled with a widening of sovereign spreads. To be effective, the combination of monetary policy instruments as well as the sequence of the use of the tools in the announced tightening cycle must ensure both an increase in the position of the ‘risk-free’ yield curve and control of sovereign spreads. 

Marcin Bielecki, Michał Brzoza-Brzezina, Marcin Kolasa, 12 October 2021

By boosting labor incomes and asset prices, a monetary easing is often believed to benefit the vast majority of households. This column argues that this intuition is misleading, because the effect of asset price changes for households depends not just on asset holdings, but on their maturity structure, which is largely driven by life-cycle motives. A typical monetary policy easing redistributes welfare from older to younger generations. Moreover, the resulting asset price appreciation is harmful for households that accumulate housing and save for retirement.

Viral Acharya, Guillaume Plantin, 22 July 2020

In the aftermath of the 2008 Global Crisis, ultra-low US policy rates have been coincident with significantly large positive shareholder payouts by US firms while investment growth has failed to keep pace with firm assets, leading to assertions of a causal link between the two trends. This column uses a parsimonious model to explain how a socially undesirable yet shareholder value-maximising crowding out of business investment by payouts can arise as an unintended consequence of aggressive monetary easing.

Emily Liu, Friederike Niepmann, Tim Schmidt-Eisenlohr, 02 February 2020

After the Global Crisis, accommodative monetary policy also eased financial conditions in emerging market economies. This column shows that US banks contributed to the transmission of US monetary policy and that regulation and supervision attenuated it. Only US banks that performed well in the Fed’s annual stress tests expanded their lending to emerging markets in response to monetary easing. Banks that performed poorly left their lending unchanged.

Sayuri Shirai, 16 October 2018

The Bank of Japan has bought massive quantities of Japanese stocks in a bid to increase aggregate demand and inflation, and to encourage Japanese savers to take on more risk. This column surveys the effectiveness of this quantitative easing programme and identifies several key issues, including stock prices not rising in proportion to profits, the overvaluation of some small-cap stocks, and adverse impacts on corporate governance. It argues that before taking any steps toward monetary policy normalisation, the Bank of Japan should introduce flexibility in interpreting the 2% price stability target.

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