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.

M Ayhan Kose, Franziska Ohnsorge, Lei (Sandy) Ye, 07 January 2016

Emerging markets face their fifth consecutive year of slowing growth. This column examines the nature of the slowdown and appropriate policy responses. Repeated downgrades in long-term growth expectations suggest that the slowdown might not be simply a pause, but the beginning of an era of weak growth for emerging markets. The countries concerned urgently need to put in place policies to address their cyclical and structural challenges and promote growth.

Máximo Camacho, Danilo Leiva-Leon, Gabriel Pérez-Quirós, 01 December 2015

Today's monetary policy effectiveness depends on expectations of future monetary policy. Shocks affect such expectations, but the nature of the shock matters. This column presents evidence that negative demand shocks lead markets to expect looser policy in the short run. Negative supply shocks lead to expectations of looser policy in the medium to long run. Unexpected expansions – from either the supply or demand side – have no significant influence on markets' expectations of future monetary policy.

Refet S. Gürkaynak, Troy Davig, 25 November 2015

Central banks around the world have been shouldering ever-increasing policy burdens beyond their core mandate of stabilising prices. This column considers the social welfare implications when central banks take on additional mandates that are usually the domain of other policymakers. Additional mandates are shown to worsen trade-offs faced by the central bank, while distorting the incentives of other policymakers. Central bank ‘mandate creep’ may be detrimental to welfare.

Javier Cravino, Andrei Levchenko, 23 November 2015

Large exchange rate swings remain a prominent and recurring feature of the world economy. This column uses household consumption patterns to examine the distributional impact of the devaluation of the peso during Mexico’s ‘Tequila Crisis’. Cost of living increases are found to be 1.25 to 1.6 times higher for the poor compared to the rich. In the interests of equity, exchange rate policy should take account of such distributional impacts.

Athanasios Orphanides, 11 November 2015

There is generally consensus among macroeconomists that monetary policy works best when it is systematic. Following the financial crisis, the US Federal Reserve shifted from long-term, systematic policy to short-term goals targeting unemployment. This column argues that, while these were appropriate in the aftermath of the downturn, such policy accommodations have been pursued for too long since. The need for a somewhat accommodative policy cannot be used to defend the current non-systematic policy and excessive emphasis on short-term employment gains.

Ansgar Rannenberg, Christian Schoder, Jan Strasky, 11 November 2015

From 2011 to 2013, fiscal policy in the Eurozone turned progressively more restrictive. This column argues that output cost of fiscal consolidation strongly depends on presence and strength of credit constraints. With credit constraints both in the household and the firm sector, fiscal consolidation would be largely responsible for the weak growth performance during 2011-2013. Postponing the fiscal consolidation to a period of unconstrained monetary policy would have avoided most of these losses.

Matthew Jaremski, David C. Wheelock, 25 October 2015

The US’s Federal Reserve System was established more than a century ago as a confederation of 12 regional districts. The selection of cities for each region’s Reserve Bank disproportionately favoured the Northeast and the state of Missouri, a fact that remains controversial to this day. This column describes how the existing banking infrastructure and population density at the time, guided the selection of these cities. Modern communication technology has reduced the need for physical proximity between Reserve and commercial banks. Debates about rezoning the Federal districts should therefore focus on the distribution of monetary policymaking authority.

Nicholas Butt, Rohan Churm, Michael McMahon, Arpad Morotz, Jochen Schanz, 11 October 2015

We test whether quantitative easing (QE), in addition to boosting aggregate demand and inflation via portfolio rebalancing channels, operated through a bank lending channel (BLC) in the UK. Using Bank of England data together with an instrumental variables approach, we find no evidence of a traditional BLC associated with QE. We show, in a simple framework, that the traditional BLC is diminished if the bank receives 'flighty' deposits (deposits that are likely to quickly leave the bank). We show that QE gave rise to such flighty deposits which may explain why we find no evidence of a BLC.

Jon Danielsson, Morgane Fouché, Robert Macrae, 20 October 2015

There has always been conflict between macro- and microeconomic regulation. Microeconomic policy reigns supreme during good times, and macro during bad. This column explains that while the macro and micro objectives have always been present in regulatory design, their relative importance has varied according to the changing requirements of economic, financial and political cycles. The conflict between the two seems set to deepen and so, regardless of which ‘wins’, policymakers must not undermine the central bank's execution of monetary policy.


Kick-off Conference of the ADEMU project (A Dynamic Economic And Monetary Union). Hosted by University of Cambridge, October 8-9, 2015. More information and registration: http://ademu-project.eu/

Paolo Pesenti, 07 September 2015

Proposed remedies for the Eurozone crisis abound. But proven, working solutions are hard to come by, especially when traditional solutions – structural adjustment and monetary policy – are seen as causing problems. This column concentrates on the policy recipes prescribed on both supply-side and demand-side to jump-start economic recovery and reduce the extent and spillovers of the crisis itself. It finds that there is no easy and straightforward strategy and that there are no obvious answers. That doesn’t mean, however, that there are absolutely no answers. The alternative option to finding a way out – that is, continuing reliance on deflationary adjustment in a currency union stuck at the zero lower bound – is probably unlikely to convince anyone that structural reforms and monetary policy are back to being part of the solution.

Carin van der Cruijsen, David-Jan Jansen, Jakob de Haan, 23 August 2015

Central banks have typically targeted their communication at financial markets. Increasingly, however, many have started actively communicating with the general public. Using Dutch survey data, this column finds that the public’s knowledge of monetary policy objectives is far from perfect, and varies widely across respondents. Those with a greater understanding of ECB objectives tend to form more realistic inflation expectations. Central banks seeking to target the general public must take account of discrepancies in households’ knowledge of and interest in monetary policy.

Alex Pienkowski, Pablo Anaya, 06 August 2015

During the Global Crisis, sovereign debt-to-GDP ratios grew substantially in the face of shocks to growth, increased fiscal deficits, bank recapitalisation costs, and rising borrowing costs. This column looks at how these various shocks interact with each other to exacerbate or mitigate the eventual impact on debt. Choice of monetary policy regime is an important determinant of how public debt reacts to these shocks.

Angus Armstrong, Francesco Caselli, Jagjit Chadha, Wouter den Haan, 02 August 2015

Does monetary policy really face a zero lower bound or could policy rates be pushed materially below zero per cent? And would the benefits of reforms to achieve negative policy rates outweigh the costs? This column, which reports the views of the leading UK-based macroeconomists, suggests that there is no strong support for reforming the monetary system to allow policy rates to be set at negative levels.

Joshua Aizenman, Menzie D. Chinn, Hiro Ito, 09 July 2015

Monetary policies of financial centre countries could have large spillover effects on smaller economies. This column argues that the strength of the links with the centre economies has been the major factor affecting financial conditions in emerging and developing countries. Open macro policies such as the exchange rate regime and financial openness are also important. An economy that pursues greater exchange rate stability and financial openness has a stronger link with the centre economies.  

Carmen M Reinhart, 09 July 2015

Contrary to the intent of the designers of what was to be an irreversible currency union, Greece may well exit the Eurozone. This column argues that default does not inevitably trigger the introduction of a new currency (or the re-activation of an old one). However, if ‘de-euroisation’ is the end game, then a forcible (or compulsory) currency conversion is likely to be a central part of that process, along with more broad-based capital controls. 

Arvind Subramanian, 15 June 2015

There is a lot of discussion of the right course of monetary policy for India. In this column, India’s Chief Economic Adviser argues that the country’s real policy interest rates have diverged significantly for consumers and producers, and are unusually high for the latter. The real rate is 2.4% based on the consumer price index, but 7.5% based on the GDP deflator. There is a clear need for more consideration of the appropriate measure of restrictiveness in these unusual times.

Michael Bordo, Harold James, 06 April 2015

The classic exchange-rate trilemma analysis argues that capital mobility, monetary autonomy and fixed exchange rates are incompatible. This column shows how policy trilemma analysis can be extended to other domains, specifically financial stability, political economy, and international relations. It argues that analysing these trade-offs can help to identify policy options that balance macroeconomic objectives and political realities in the face of globalisation.