In the face of the zero lower bound, the ECB’s reduced its balance sheet by a third. This column introduces a new CEPR Policy Insight by former central-bank governor Athanasios Orphanides, which argues that the outcome has been economic stagnation and harmful disinflation. It explores alternative explanations for this policy, including the role of politics in managing the Eurozone crisis and proposes balance-sheet policy to help fulfil the ECB’s mandate in the face of the Fed’s tightening.
Athanasios Orphanides, Friday, December 5, 2014
Pelin Ilbas, Øistein Røisland, Tommy Sveen, Wednesday, February 13, 2013
Economists everywhere recognise the Taylor rule’s importance in monetary policymakers’ decisions. But exactly how important is it? This column aims to analyse the Taylor rule’s influence on US monetary policy by estimating the policy preferences of the Fed. There is a high degree of reluctance to let the interest rate deviate from the Taylor rule and, contrary to the literature and current policy debates, it seems large deviations from the Taylor rule between 2001 and 2006 were in fact due to negative demand-side shocks. During this period, there is in fact no evidence to support the notion of a decreased weight on the Taylor rule.
Marco Annunziata, Tuesday, February 12, 2013
Economists and policymakers are increasingly concerned that central-bank independence is being threatened. This column argues that central banks are not losing their independence, but that their room for manoeuvre is being eroded by a lack of structural reforms and fiscal adjustment. The financial crisis has caused mission creep, pushing central banks well beyond their comfort zones and as the time comes to pull back, independent monetary policy could still be powerless against fiscal dominance.
Jean Pisani-Ferry, Guntram Wolff, Thursday, May 3, 2012
The ECB has managed a massive expansion of its balance sheet with long-term refinancing operations. This has been called the equivalent of quantitative easing, as done by the Fed and the Bank of England. This column thus argues that the main obstacle for the ECB is not tight limits on the purchase of government bonds. Rather, it is the absence of a banking and fiscal union and the heterogeneity within the Eurozone that reduces the effectiveness of the ECB instruments.
Thomas J. Sargent, Martin Ellison, Tuesday, November 24, 2009
The Federal Reserve Open Market Committee has been criticised for making forecasts that are inferior to Federal Reserve staff forecasts. This column argues that FOMC forecasts are worst-case scenarios used to inform policy decisions, rather than best estimates of future events. It says that FOMC forecasts are a rational response to doubts about the staff’s model.
Willem Buiter, Wednesday, March 25, 2009
The last column in this series on fiscal aspects of central banking reviews the differences in fiscal backing for the Bank of England, the US Federal Reserve, and the European Central Bank.
Willem Buiter, Tuesday, March 24, 2009
The second of this four-column series on fiscal aspects of central banking discusses the institutional constraints on quantitative easing. It argues that the ECB can and should engage in quantitative easing since its independence gives it a credible non-inflationary exit strategy. The Fed, however, seems heading for a bout of inflation stemming from Congressional pressure. Buiter argues that the Bank of England’s situation lies between.
Charles Wyplosz, Sunday, July 20, 2008
Should taxpayers bail out the banking system? One of the world’s leading international macroeconomists contrasts the Larry Summers “don’t-scare-off-the-investors” pro-bailout view with the Willem Buiter “they-ran-into-a wall-with-eyes-wide-open” anti-bailout view. He concludes that either way, taxpayers are always the losers. The best policy makers can do is to be merciless with shareholders and gentle with bank customers.
Mika Widgrén, Monday, February 25, 2008
The Fed’s policy changes seem nimble compared to the ECB’s. Here one of Europe’s leading analysts of voting mechanisms argues that the ECB’s institutional design accounts for the difference. Forthcoming ECB reforms are unlikely to alleviate the problem.
Stephen Cecchetti, Wednesday, August 15, 2007
A revised and updated version of the 13 August column on the basic how's and why's of what the Fed has been doing to calm financial markets.
Axel Leijonhufvud, Monday, June 25, 2007
An expansionary monetary policy and an historical conjuncture that happens to produce no inflation will lead to asset price inflation and deterioration of credit. At some stage, central banks will have to mop the liquidity or see inflation do it for them.