Monetary policy

Eugenio Cerutti, Stijn Claessens, Luc Laeven, 10 February 2016

Macroprudential policies are meant to reduce procyclicality in financial markets and associated systemic risks. However, empirical evidence on which policies are most effective is still preliminary and inconclusive. This column documents the use of macroprudential policies by a large set of countries over an extended period, and covering many instruments. It shows which policies are most effective in reducing the growth rates of overall credit and household and corporate sector credit, and explores differences across countries, degrees of avoidance, and whether policies work better during booms or busts. 

Filippo Ippolito, Ali K. Ozdagli, Ander Perez, 02 February 2016

Most lending by banks to corporations occurs through loans with floating interest rates. As a result, conventional monetary policy actions are transmitted directly to borrowers via a change in the interest rate paid on existing bank loans. This column argues that the ‘pass-through’ of policy rates to the cost of outstanding bank loans has significant real effects for corporations.

Yin-Wong Cheung , Sven Steinkamp, Frank Westermann, 27 January 2016

Since the beginning of the Global Crisis, illicit capital flows out of China have been in decline. This column argues that a key factor behind this is the relative money supply between China and the US. China’s rapidly increasing money supply, combined with the Fed’s expansionary monetary policy, prompted investors to reallocate their portfolios between the two countries. Another contributing factor is China’s gradual process of capital account liberalisation. The Fed’s interest rate hike in December may see a resurgence in China’s capital flight.

Wouter den Haan, 19 January 2016

Policymakers have employed various new tools in response to the Global Crisis to revitalise economic performance. This column introduces a new eBook that brings together key Vox columns to reveal the evolution of the economic profession’s thinking about one such tool – quantitative easing.

Lars E.O. Svensson, 12 January 2016

The monetary policy of ‘leaning against the wind’ involves a higher policy interest rate. It is usually justified as reducing the probability and severity of a future crisis. This column argues that the costs of the policy exceed the benefits by a substantial margin, especially when taking into account that the cost of a crisis is higher if the economy is initially weaker due to the leaning itself. Furthermore, contrary to the common argument that the policy may be justified when macroprudential policy is less effective or even non-existent, less effective macroprudential policy actually makes the case against leaning against the wind policy stronger, not weaker.

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