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.
Willem Buiter, Tuesday, March 24, 2009
Willem Buiter, Saturday, May 8, 2010
First published on 24 March 2009, this column is more relevant than ever. In it Willem Buiter argues that the ECB’s lack of fiscal backing is both unusual among major central banks and a severe handicap – it is a factor in why the ECB is “fiddling while the Eurozone burns” by hesitating to undertake quantitative easing started by the Fed, Bank of England, and others.
Barry Eichengreen, Tuesday, January 20, 2009
2008 was the year of asymmetric financial shocks for the Eurozone, but 2009 will be the year of the symmetric economic shock. All of Europe is slipping simultaneously towards recession and the threat of deflation. Here one of the world’s leading international economists explains that a common monetary policy response is optimal. Euro interest rates should be cut to zero and quantitative easing undertaken, all complemented by fiscal expansion by Eurozone nations that can afford it. What started as the euro’s greatest challenge could be its salvation, but only if policy makers act swiftly.
Jeffrey Frankel, Wednesday, December 24, 2008
Trade among euro members has increased 10-15% since the introduction of the euro, a far smaller effect than estimated prior to the currency's introduction. What explains the discrepancy between the European experience and previous history? This column explores the difficulty of explaining the difference.
Marco Buti, Vitor Gaspar, Wednesday, December 24, 2008
This column looks back at the first ten years of the euro, from the uncertainty surrounding its adoption to the one caused by the current crisis. In between, the euro proved a resounding success. It is worth remembering the magnitude of the original challenge in order to use the crisis as an opportunity to strengthen European governance.
John Muellbauer, Monday, October 27, 2008
The current financial crisis will probably lead to an unnecessarily deep recession. This column suggests that European central banks, misguided by outdated econometric models, should have cut rates faster and deeper in a coordinated fashion. They should now scrap these models and agree on a large, coordinated cut of 2 percentage points.
Daniel Gros, Stefano Micossi, Saturday, September 20, 2008
The radical moves in the US have direct implications for European banks and indirect implications for European governments. This column discusses the likely channels and notes that several European banks are both too big to fail and may be too big to be saved by their national governments alone.
Petra Geraats, Francesco Giavazzi, Charles Wyplosz, Tuesday, September 9, 2008
Recent data suggest that the ECB’s credibility is worryingly low on the inflation-fighting front. This column explains how improved ECB transparency and communication could help it to regain credibility with markets and investors.
Christopher Crowe, Ellen E. Meade, Sunday, July 27, 2008
The European Central Bank is under fire from Nicholas Sarkozy. This column introduces a new set of measures of central bank independence and transparency, which shows that the ECB is markedly more transparent than the Eurozone members’ central banks were in the 1990s.
Alan Ahearne, Juan Delgado, Jakob von Weizsäcker, Friday, June 27, 2008
Housing booms associated with credit booms are particularly damaging, but the ECB’s one-size-fits-all monetary policy is useless in pricking national bubbles. Euro area governments should use national banking regulations to dampen national bubbles and countercyclical housing taxes to prick bubbles that arise.
Guido Tabellini, Monday, June 23, 2008
The ECB and the Fed are pursuing very different policies on inflation fighting and the use of monetary aggregates in guiding policy. One of Italy’s leading economists argues that either the ECB or the Fed is making a mistake.
Francesco Giavazzi, Monday, June 2, 2008
Editor's Note: Originally posted 2 June 2008.
There has been a persistent spread between the rate at which banks lend each other money and government-backed securities yields in recent months. This column describes hypotheses explaining the spread – including the possibility that banks aren’t lending in order to bankrupt acquisition targets.
Helge Berger, Volker Nitsch, Friday, May 30, 2008
The European Central Bank’s Governing Council continues to expand as new economies adopt the euro. This column presents empirical evidence that the optimal central bank committee size is seven to ten members – far fewer than the 22 members the ECB will have come 2009.
Richard Baldwin, Saturday, May 8, 2010
This column, first posted 17 May 2008, reviews Willem Buiter's analysis of why the ECB is so hesitant to buy debt. Central banks can go broke – and some in developing countries have done so recently. The ECB is now lending against dubious collateral. An ECB recapitalisation seems unthinkable at the moment, but that’s why it is a good time to think the unthinkable. Willem Buiter considers the question at length in CEPR Policy Insight No. 24 and argues that Eurozone fiscal authorities should, ASAP, agree on a formula for fiscal burden-sharing should an ECB recapitalisation ever be necessary.
Petra Geraats, Francesco Giavazzi, Charles Wyplosz, Thursday, February 7, 2008
The latest Monitoring the European Central Bank Report argues that the ECB has a serious credibility and communication problem: the way the Governing Council makes its interest rate decisions remains clouded.
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.
Petra Geraats, Francesco Giavazzi, Charles Wyplosz, Thursday, February 7, 2008
Central Banking works by guiding the expectations of savers, investors, consumers and markets – not an easy job. This column, based on the latest report in CEPR’s series ‘Monitoring the European Central Bank’, argues that the job would be easier if the ECB published its anticipated interest rate path and voting records.
Carlo Favero, Francesco Giavazzi, Monday, January 21, 2008
The European Economic and Monetary Union (EMU) has created a new economic area, larger and closer with respect to the rest of the world. Area-specific shocks are more important than country-specific, thus it is not surprising the European Central Bank (ECB) use models to study optimal monetary policy in the Euro area assuming it works essentially as a closed economy, hit primarily by domestic shocks. The authors of CEPR DP6654 explore the variable most directly related to current and expected monetary policy, the yield on long-term government bonds, and determine whether the response of long-term rates is consistent with a closed economy.
Tommaso Monacelli, Friday, December 14, 2007
The ECB’s decision to leave interest rates unchanged lacks transparency and appears inconsistent with the specific policy framework that the ECB itself has decided to embrace. In the current period of great uncertainty, transparency would pay large dividends.
Benjamin K. Johannsen, Andrew Levin , Wednesday, October 24, 2007
Recent history of long-run inflation expectations suggests reasonably well-anchored expectations in both regions, however no studies to date have compared the recent evolution and dispersion across forecasters' long-horizon projections in the United States to those in the EU. The authors of CEPR DP6536 use daily evidence from financial markets and surveys, which reveal a substantially greater degree of forecaster disagreement about long-run inflation outcomes in the United States than in the euro area.