Monetary policy

Transmission of Fed tapering news to emerging markets

Joshua Aizenman, Mahir Binici, Michael M Hutchison, 4 April 2014

In 2013, policymakers began discussing when and how to ‘taper’ the Federal Reserve’s quantitative easing policy. This column presents evidence on the effect of Fed officials’ public statements on emerging-market financial conditions. Statements by Chairman Bernanke had a large effect on asset prices, whereas the market largely ignored statements by Fed Presidents. Emerging markets with stronger fundamentals experienced larger stock-market declines, larger increases in credit default swap spreads, and larger currency depreciations than countries with weaker fundamentals.

Europe’s banking problems and secular stagnation

Jan Willem van den End , Jakob de Haan, 28 March 2014

While many economists argue that demand stimulus is needed, this column argues that supply side measures are necessary to avoid secular stagnation. In the Eurozone, it is necessary to clean up and strengthen the balance sheets of banks, which can kick-start the flow of new lending. The comprehensive assessment by the ECB is an important step in this direction.

The ECB should do QE via forex intervention

Jeffrey Frankel, 24 March 2014

The Eurozone needs to further ease monetary policy because under the current low inflation and high unemployment periphery countries need to suffer painful deflation. However, the ECB faces challenges other central banks do not face. This column proposes a way to overcome some of these hurdles. It argues that the ECB should buy US treasury securities, lowering the foreign exchange value of the euro. That would be the best way to restore the export sector of the periphery countries.

Making macroprudential stress tests more effective

Viral Acharya, Robert Engle, Diane Pierret, 14 March 2014

Macroprudential stress tests have been employed by regulators in the US and Europe to assess the solvency condition of financial firms in adverse macroeconomic scenarios. The capital required by regulators in such adverse scenarios is strongly dependent on Basel capital standards. This column argues that macro stress tests would be more effective if capital requirements were measured differently from the current regulatory risk weight-based approach, and in particular, were based on total assets and on market risks.

Economic flaws in the German court decision

Paul De Grauwe, 13 March 2014

The German constitutional court declared the OMT program to against EU law. This column argues that the economic logic used by the German judges was flawed – based on economic theories that have been rejected empirically.

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