EZ inflation has been falling steadily since early 2013, turning negative in late 2014. This column surveys a host of recent research from Banca d’Italia that examined the drivers of this fall, its macroeconomic effects, and ECB responses. Aggregate demand and oil prices played key roles in the drop, which has consistently ‘surprised’ market-based expectations. Towards the end of 2014 the risk of the ECB de-anchoring inflation expectations from the definition of price stability became material.
Stefano Neri, Stefano Siviero, Saturday, August 15, 2015
Angus Armstrong, Francesco Caselli, Jagjit Chadha, Wouter den Haan, Sunday, August 2, 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.
Simon Wren-Lewis, Friday, January 30, 2015
The anaemic recovery from the Global Crisis and the downward trend in real interest rates since 1980 have revived interest in the idea of secular stagnation. This column argues that if the US, UK, and Eurozone had not pursued contractionary fiscal policies from 2010 onwards, the recovery would not have been so slow and nominal interest rates would no longer be at the zero lower bound. Expanding the stock of government debt would have ameliorated, not worsened, the shortage of safe assets.
Valerie Ramey, Sarah Zubairy, Friday, January 23, 2015
There is no consensus among economists about the size of the multiplier of government purchases. It is not clear either how multipliers vary with the state of the economy. This column presents new evidence on this issue using large historical data set from the US. The findings suggest that there is no evidence that fiscal multipliers differ by the amount of unemployment or the degree of monetary accommodation.
Dirk Niepelt, Wednesday, January 21, 2015
Recent experience with the zero lower bound on nominal interest rates, and the use of high-denomination notes by criminals and tax evaders, have led to revived proposals to phase out cash. This column argues that abolishing cash may be neither necessary nor sufficient to overcome the zero lower bound problem, and would severely undermine privacy. Allowing the public to hold reserves at central banks could reduce the need for deposit insurance, although the transition to the new regime and the effects on credit supply must be carefully considered.
Jean-Pierre Landau, Tuesday, December 2, 2014
Eurozone inflation has been persistently declining for almost a year, and constantly undershooting forecasts. Building on existing research, this column explores the conjecture that low inflation in the Eurozone results from an excess demand for safe assets. If true, this conjecture would have definite policy implications. Getting out of such a ‘safety trap’ would necessitate fiscal or non-conventional monetary policies tailored to temporarily take risk away from private balance sheets.
Eric T Swanson , Saturday, November 8, 2014
In December 2008, the Fed lowered the federal funds rate to essentially zero and has kept it there since then. This column argues that, contrary to traditional macroeconomic thinking, monetary policy has not been severely constrained by the zero bound until mid-2011. The results imply that the Fed could have done more to ease monetary policy between 2009 and 2011. These findings could also help explain why the fiscal stimulus package adopted in 2009 did not bring the expected success.
Olivier Blanchard, Friday, October 3, 2014
Before the 2008 crisis, the mainstream worldview among US macroeconomists was that economic fluctuations were regular and essentially self-correcting. In this column, IMF chief economist Olivier Blanchard explains how this benign view of fluctuations took hold in the profession, and what lessons have been learned since the crisis. He argues that macroeconomic policy should aim to keep the economy away from ‘dark corners’, where it can malfunction badly.
Karl Walentin, Thursday, September 11, 2014
Central banks have resorted to various unconventional monetary policy tools since the onset of the Global Crisis. This column focuses on the macroeconomic effects of the Federal Reserve’s large-scale purchases of mortgage-backed securities – in particular, through reducing the ‘mortgage spread’ between interest rates on mortgages and government bonds at a given maturity. Although large-scale asset purchases are found to have substantial macroeconomic effects, they may not necessarily be the best policy tool at the zero lower bound.
Philippe Bacchetta, Kenza Benhima, Sunday, August 24, 2014
Among the various explanations behind global imbalances, the role of corporate saving has received relatively little attention. This column argues that corporate saving is quantitatively relevant, and proposes a theory that is consistent with the stylised facts and useful for understanding the current phase of global rebalancing. The theory implies that, while the economic contraction originating in developed countries has pushed interest rates towards the zero lower bound, the recent growth slowdown in emerging countries could push them out of it.
Coen Teulings, Richard Baldwin, Wednesday, September 10, 2014
The CEPR Press eBook on secular stagnation has been viewed over 80,000 times since it was published on 15 August 2014. The PDF remains freely downloadable, but as the European debate on secular stagnation is moving into policy circles, we decided to also make it a Kindle book. This is available from Amazon; all proceeds will help defray VoxEU expenses.
Viral Acharya, Richard Portes, Richard Reid, Wednesday, July 3, 2013
Many central banks have recently employed unprecedented expansionary monetary policy, keeping interest rates at near-zero levels for an extended period of time. Quantitative easing interventions have been employed to affect asset prices directly, most notably in government-bond and mortgage markets, in order to keep sovereign and mortgage borrowing costs low. CEPR recently organised a conference to discuss existing theory and empirical evidence on the implications of an extended phase of unconventional monetary policy. This short column outlines the key issues and also includes a Vox Views video summary of the event.
Charles Wyplosz, Monday, October 14, 2013
Exiting from unconventional monetary policies is a key challenge facing policymakers in advanced nations and a key worry for everyone else. This column introduces the new 'Geneva Report' on the subject, Exit Strategies, by Alan Blinder, Thomas Jordan, Donald Kohn and Frederic Mishkin. The report considers what the post-exit world will look like, how we can get there and the long-run impact on central banking.
Jesús Fernández-Villaverde, Juan F Rubio-Ramirez, Pablo A Guerron-Quintana, Monday, November 7, 2011
The authors of CEPR DP8642 offer a reminder about the usefulness of supply-side policies when the constraints of fiscal consolidation and the zero lower bound limit the macroeconomic-policymaking toolbox. A wealth effect from supply-side reforms could boost aggregate demand and help pull an economy out of the doldrums.
Jesús Fernández-Villaverde, Juan F Rubio-Ramirez, Friday, November 11, 2011
With nominal interest rates in many western countries at or approaching the zero lower bound, economists are calling for more quantitative easing or greater fiscal expansions to generate inflation, reduce real interest rates, and rejuvenate the economy. But what if these policies fail? Or are no longer possible? This column outlines a third way: supply-side policies.
Andrew Levin , Friday, November 26, 2010
Andrew Levin of the Federal Reserve talks to Romesh Vaitilingam about his research on optimal monetary policy at the zero lower bound. They discuss the effectiveness of forward guidance, the use of non-standard measures and the interactions between monetary and fiscal policy. The interview, which was recorded at the annual congress of the European Economic Association in Glasgow in August 2010, represents Andrew Levin’s personal views.<i> [Also read the transcript] </i>
Martin Bodenstein, Christopher J. Erceg, Luca Guerrieri, Monday, September 13, 2010
CEPR Discussion Paper 8006 analyses how foreign demand shocks impact home economies when monetary policy is constrained by the zero lower bound. The authors find that even in relatively closed economies like the United States and the euro area, ZLB-constrained monetary policy amplifies the effects of foreign shocks.
Rajiv Shastri, Saturday, August 14, 2010
How can monetary policy overcome the zero lower bound on interest rates? This column explores the possibility of negative nominal interest rates, arguing that, for it to work, all reserve nations must agree to protect against using foreign currencies as an alternative means of exchange.
Stefan Gerlach, John Lewis, Tuesday, July 27, 2010
Monetary policy during the global crisis entered unchartered territory. This column suggests that fear of a global recession may have led policymakers to cut rates more aggressively in order to prevent the need for negative interest rates.