A safe asset for Eurozone QE: A proposal

Luis Garicano, Lucrezia Reichlin 14 November 2014

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As Europe moves closer to deflation, the ECB is gradually inching towards outright quantitative easing (QE) – increasing the monetary base through purchases of government bonds (Draghi 2014). But undertaking such purchases confronts a problem. There is no Eurozone ‘government bond’ to purchase. Were the ECB to purchase the debt of all member countries, it would end up with a large amount of debt on its balance sheet, making it impossible for a country to default without triggering very large redistribution.

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Topics:  Macroeconomic policy Monetary policy

Tags:  Eurozone QE, Safe Market Bonds, ECB, quantitative easing, unconventional monetary policy, diabolic loop, doom loop, sovereign debt, safe assets, savings glut, risk weights, bank capital

Understanding the global turmoil: It’s the general equilibrium, stupid

Ricardo Caballero 21 May 2010

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Here we go again. Financial volatility is re-emerging, this time from the other side of the ocean. But in the current globalised environment the ocean isn’t wide enough to contain the contagion and fear.

  • Will this rollercoaster ride end any time soon?
  • Do policymakers (and Congress in particular) have the right diagnosis so we can hope that a cure is around the corner?

I fear the answer to both is no.

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Topics:  Global crisis

Tags:  securitisation, global crisis, safe assets

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