Forward guidance in the UK

Spencer Dale, James Talbot 13 September 2013

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At its meeting on 1 August 2013, the Monetary Policy Committee (MPC) agreed to provide state-contingent forward guidance concerning the future conduct of monetary policy. The aim was to provide more information to help financial markets, households and businesses understand the conditions under which the current stance of monetary policy would be maintained.

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Topics:  Monetary policy

Tags:  monetary policy, Central Banks, Bank of England, forward guidance

“Mensch tracht, und Gott lacht” – what’s the best guidance on monetary policy?

David Miles 22 October 2014

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“Mensch tracht, und Gott lacht” is a Yiddish proverb – men plan and God laughs. Woody Allen puts the same thought this way: “If you want to make God laugh tell him about your plans”. Some people might see these words as a fitting epitaph for forward guidance on monetary policy. The Bank of England has certainly faced a good deal of criticism for the guidance that it has recently been giving, as has the Federal Reserve in the US.

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Topics:  Monetary policy

Tags:  forward guidance, unconventional monetary policy, monetary policy, Central Banks, central bank communication, interest rates, uncertainty

‘Leaning against the wind’: exchange rate intervention in emerging markets works

Christian Daude, Eduardo Levy Yeyati 01 September 2014

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The economic debate has typically downplayed the exchange rate-smoothing nature of central bank foreign exchange intervention, attributing it to precautionary or prudential motives, or to the goal of keeping the exchange rate undervalued for mercantilist reasons.

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Topics:  Exchange rates Monetary policy

Tags:  Central Banks, exchange rates, exchange rate smoothing, emerging markets, Leaning against the wind

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

TARGET balances, Bretton Woods, and the Great Depression

Michael Bordo 21 March 2014

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During the Eurozone crisis, an analogy was made between the events in Europe between 2007 and 2012 and the collapse of the Bretton Woods System between 1968 and 1971. There has been a build-up of TARGET liabilities since 2007 by some central banks (notably Greece, Ireland, Portugal, and Spain, or the ‘GIPS’), and of TARGET assets by Germany and others.

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Topics:  Economic history International finance

Tags:  ECB, eurozone, euro, global imbalances, Central Banks, financial crisis, Great Depression, Eurosystem, Eurozone crisis, Bretton Woods, TARGET

Single supervision and resolution rules: Is ECB independence at risk?

Donato Masciandaro, Francesco Passarelli 21 December 2013

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A successful transition to a European Banking Union requires robust and credible ‘Chinese walls’ between the ECB’s role as monetary authority and any responsibility in the Single Supervisory Mechanism or in the resolution rules. Otherwise, the ECB’s independence would be at risk, given that monetary policy would likely have larger distributional effects.

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Topics:  EU institutions Financial markets

Tags:  ECB, Central Banks, central bank independence, global financial crisis, banking regulation, bank resolution, banking union

Regulation, supervision and the role of central banks

The Editors 20 December 2013

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The 2008 Global Crisis consisted of a financial crisis in the North Atlantic economies and a trade and expectations crisis in the rest of the world. Five years on, US and European policymakers as still struggling to put in place regulation and supervision regimes aimed at avoiding future crises.

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Topics:  Macroeconomic policy

Tags:  Central Banks, financial regulation, financial supervision

International cooperation and central banks

Harold James 08 October 2013

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Tackling the aftermath of a major financial crisis, the origins of which lie in ‘global imbalances’ and whose transmission mechanisms are cross-national, seems prima facie to demand more substantial and institutionalised cooperation. However, in the five years since the collapse of Lehman Brothers, visions of what central banks can and should do have changed profoundly. In particular, the demand that they should play a much more vigorous and preemptive role in financial supervision has had made them more nationally focused and in consequence less prone to cooperate.

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Topics:  Global crisis International finance

Tags:  monetary policy, global imbalances, Central Banks, global crisis, policy coordination, Eurozone crisis

Independent monetary policies, synchronised outcomes

Espen Henriksen, Finn Kydland, Roman Šustek 02 October 2013

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The recession in the Eurozone has given new life to optimal-currency-area thinking. The argument goes that the disadvantages of a single currency come from the loss of flexibility and ability to use monetary policy to respond to “asymmetric shocks” (Krugman and Obstfeld 2009). The often-unarticulated presumption is that countries with independent monetary policies would make different policy decisions as long as contemporaneous shocks to output and employment were asymmetric.

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Topics:  Exchange rates Monetary policy

Tags:  inflation, monetary policy, EMU, Central Banks, capital controls, exchange-rate policy

Should Brazil’s central bank be selling foreign reserves?

Márcio Garcia 25 September 2013

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The US dollar’s rise in August and the Brazilian Central Bank’s (BCB) interventions in forex markets have started a debate about whether the BCB should keep on intervening as it has been doing, mostly via currency derivatives markets, or if it should also be selling its international reserves.

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Topics:  Exchange rates International finance

Tags:  exchange rates, Central Banks, capital flows, derivatives, Brazil

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