There are several conflicting channels through which monetary policy could affect the distribution of wealth, income, and consumption. This column argues that contractionary monetary policy raised inequality in the US, while expansionary monetary policy lowered it. This evidence stresses the need for monetary policy models that take into account heterogeneity across households. Current monetary policy models may significantly understate the welfare costs of zero-bound episodes.
The reason for the divergent macroeconomic policies on the two sides of the Atlantic after the Crisis remains a hotly debated subject. The topic was also discussed at the recent “Macroeconomic Policy Mix in the Transatlantic Economy” workshop. This column summarises the main discussions at the workshop. Other covered topics included secular stagnation, the output effects of fiscal consolidation, cross-border banking (as a source and propagator of shocks), and the asset-market effects of unconventional monetary policies.
As part of the move to a banking union, the largest banks in the Eurozone will soon be supervised by the ECB. This column argues that supervision and the lender of last resort function should be seen as a joint product. After the introduction of the euro, the national central banks continued to act as lenders of last resort because bank supervision remained at the national level. Now that supervision is moving to the ECB, so should the lender of last resort function for the larger, cross-border, banks.
Many central banks embrace forward guidance by announcing expected interest rate paths. But how likely it is that actual rates will be close to expected ones? This column argues that quantifying such uncertainty poses great difficulties. Precise probability statements in a world of uncertainty (not just risk) can be misleading. It might be better to rely on qualitative guidance such as: “Interest rate rises will probably be gradual and likely to be to a level below the old normal”.
To work towards resolving Europe’s ongoing debt crisis this column looks to the past. From the recent emerging market debt crisis (1980s-2000s) and the interwar episode of the 1920s-1930s we learn that debt write-downs and defaults are able to be postponed but not prevented. Punishment for default is temporary, sometimes followed by a renewed surge in borrowing that leads to another crisis.
Other Recent Articles:
- Keynes’ asset management: King’s College, 1921–1946
- China can benefit from a generous unfunded pension system
- EU exports and the role of SMEs
- How insurers differ from banks: Implications for systemic regulation
- Parents, television, and cultural change
- Regret and economic decision-making
- Short-run impulsiveness versus long-run impatience
- Maximising happiness does not maximise welfare
- Mental illness: The great hidden problem in today's society
- EU bank deleveraging
- The sources of firms’ success
- Four principles for an effective state
- Corporate governance of banks: Risk appetite as a pre-commitment mechanism
- The cleansing effect of the minimum wage in China
- The great mortgaging
- The economics of parenting
- Regulating the global insurance industry: Motivations and challenges
- Norway is right to reassess its sovereign wealth fund
- Drug quality and global trade
- Ukraine: A stress test of IMF credibility