The monetary-fiscal policy connection is under scrutiny by the German Constitutional Court in the context of the ECB’s OMT bond-buying programme. This column argues that most analyses are deeply flawed by the misapplication of private-company default principles to the central bank. ECB bond-buying transforms public bonds into monetary base, and sovereign-default risk into inflation risk. The real question is: What is the non-inflationary limit to money-base expansion? This depends upon the economic situation and is much higher in the current liquidity-trap setting.
Central banks on both sides of the Atlantic are pondering ways of unwinding their bloated balance sheets and easing out of extraordinary post-crisis monetary policy interventions. This column discusses the recent Geneva Conference on the World Economy that focused on ‘exit strategies’. Where exactly do central banks exit? And how? This column also introduces a new Vox feature, ‘Vox Views’, which are short video interviews with world-renown economists. The first two of these feature Alan Blinder and Don Kohn.
Since the double-digit inflation of the 1970s, central banks have sought to reduce inflation and keep it low. This column argues that recent history teaches us that inflation has fallen too low. Raising inflation targets to 4% would have little cost, and it would make it easier for central banks to end future recessions.
The global financial crisis has shattered the confidence of many established principles of monetary policy and financial supervision. This column argues that the two should not remain separate, and maps out the major challenges faced by their complementary implementation.
The European Central Bank has often been criticised for inconsistencies in its policy communications. At the same time, several papers show how ECB communication has been effective. This column resolves this paradox by providing evidence showing that ECB introductory statements were, in fact, quite consistent over the first decade of its operations.
Other Recent Articles:
- Policy preferences of central bankers and the design of a monetary-policy committee
- Why do emerging markets liberalise capital-outflow controls? Fiscal versus net capital flow concerns
- Fiscal forecasts: Governments vs independent agencies
- Why is this global recovery different?
- Macroprudential rebalancing
- Augmented inflation targeting: Le roi est mort, vive le roi
- Measuring the clarity of central-bank communication
- Time for the Eurozone to shift gear: Issuing euros to finance new spending
- Fiscal consolidation and implications of social spending for long-term fiscal sustainability
- The interaction between monetary and macroprudential policies
- The Brazilian competitiveness cliff
- Helicopter money
- The influence of the Taylor rule on US monetary policy
- Misplaced concerns about central-bank independence
- Monetary policy and firing costs
- Monetary targetry: Might Carney make a difference?
- Monetary policy and banking supervision
- Central banks can phase in nominal GDP targets without damaging the inflation anchor
- Monetary policy in Latin America: Where are we going?
- Quantitative easing and unconventional monetary policy
- The case for 4% inflationBall
- Helicopter money as a policy optionReichlin, Turner, Woodford
- The banking crisis as a giant carry trade gone wrongAcharya, Steffen
- Everything the IMF wanted to know about financial regulation and wasn’t afraid to askBair
- Rethinking macroeconomic policy: Getting granularBlanchard, Dell'Ariccia, Mauro
- A tale of two depressions: What do the new data tell us? February 2010 updateEichengreen, O’Rourke
- Educated in America: College graduates and high school dropoutsHeckman, LaFontaine
- Eurozone breakup would trigger the mother of all financial crisesEichengreen
- Panic-driven austerity in the Eurozone and its implicationsDe Grauwe, Ji
- Debt, deleveraging, and the liquidity trap: A new modelKrugman
Baldwin, Kawai, Wignaraja, 11 June 2013
Giavazzi, Portes, Weder di Mauro, Wyplosz