Is the ECB doing QE?

Charles Wyplosz 12 September 2014

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The 4 September announcement by Chairman Mario Draghi has been greeted with enthusiasm by the markets and the media. It has been long awaited, and many believe that the ECB has finally delivered. This is not sure. The ECB intends to buy large amounts of securities backed by bank lending to households (mortgages) and to firms.

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Topics:  Exchange rates Financial markets Monetary policy

Tags:  quantitative easing, QE, monetary policy, unconventional monetary policy, ECB, securitisation, bank lending, Europe, eurozone, Subprime, stress tests, deleveraging, recapitalisation, depreciation, exchange rates, euro, central banking

Quantifying the macroeconomic effects of large-scale asset purchases

Karl Walentin 11 September 2014

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Central banks have used various unconventional monetary policy tools since the onset of the financial crisis yet the debate continues regarding their efficiency. This column attempts to shed light on the ‘bang for the buck’, or the macroeconomic effects, of one such unconventional monetary policy – the Federal Reserve’s large-scale asset purchases of mortgage-backed securities employed during the Fed’s QE1 and QE3 programs.

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Topics:  Global crisis Monetary policy

Tags:  monetary policy, unconventional monetary policy, large-scale asset purchases, central banking, financial crisis, Federal Reserve, quantitative easing, mortgage-backed securities, term premia, zero lower bound, interest rates, US, UK, Sweden, mortgages, global crisis

To exit the Great Recession, central banks must adapt their policies and models

Marcus Miller, Lei Zhang 10 September 2014

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“Practical men…are usually the slaves…[of] some academic scribbler of a few years back” – John Maynard Keynes.

For monetary policy to be most effective, Michael Woodford emphasised the crucial importance of managing expectations. For this purpose, he advocated that central banks adopt explicit rules for setting interest rates to check inflation and recession, and went on to note that:

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Topics:  Global crisis Macroeconomic policy Monetary policy

Tags:  Taylor rule, forward guidance, great moderation, global crisis, Great Recession, quantitative easing, DSGE models, expectations, tapering, US, UK, Europe, eurozone, ECB, Bank of England, central banking, IMF, unconventional monetary policy

What were they thinking? The Federal Reserve in the run-up to the 2008 financial crisis

Stephen Golub, Ayse Kaya, Michael Reay 08 September 2014

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Financial crises are caused by imprudent borrowing and lending, but as former Federal Reserve chairman William McChesney Martin noted, it is ultimately up to regulators to ‘take away the punch bowl’ when the larger economy is at risk. Indeed, many have criticised regulators for failing to anticipate and prevent the 2008 crash (Buiter 2012, Gorton 2012, Johnson and Kwak 2010, Roubini and Mihm 2010). Little work has been done, however, on why regulatory agencies failed to act despite warnings from prominent commentators (Borio and White 2004, Buffett 2003, Rajan 2005).

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Topics:  Financial markets Global crisis Monetary policy

Tags:  financial crisis, Federal Reserve, FOMC, global crisis, collateralised debt obligations, Credit Default Swaps, LTCM, CDOs, CDSs, central banking

Lessons for rescuing a SIFI: The Banque de France’s 1889 ‘lifeboat’

Pierre-Cyrille Hautcoeur, Angelo Riva, Eugene N. White 02 July 2014

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In the aftermath of the 2008 financial crisis, the Dodd-Frank Act of 2010 set out to limit the authority of the Federal Reserve to rescue insolvent financial institutions. Since 1932, Section 13(3) of the Federal Reserve Act had given the agency the power to lend to “any individual partnership, or corporation” in “unusual and exigent circumstances.” The 2010 Act now compels the Fed to consult with the Secretary of the Treasury before implementing a new lending program.

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Topics:  Economic history Financial markets

Tags:  Central Banks, financial crises, moral hazard, lender of last resort, bailout, bank runs, SIFIs, central banking, Banque de France

What future for central banking? Insights from the past

Stefano Ugolini 11 December 2011

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For nearly three decades to 2007, the theory and practice of central banking have seen a remarkable convergence throughout the world. Yet the events of the recent years have marked a profound watershed. The pre-crisis consensus is now increasingly seen as inadequate, and changes to the central banker’s toolkit are being proposed (Eichengreen et al. 2011).

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Topics:  Global crisis Global governance Monetary policy

Tags:  monetary policy, money supply, central banking

Rethinking central banking

Barry Eichengreen, Eswar Prasad, Raghuram Rajan 20 September 2011

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In the wake of the global financial crisis, there is an emerging consensus that the framework underpinning modern central banking – known as flexible inflation targeting – needs to be rethought.

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Topics:  Monetary policy

Tags:  financial stability, central banking, flexible inflation targeting