ECB interest rate policy and the “zero lower bound”
Stefan Gerlach, John Lewis, 27 July 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.
Since the start of the financial crisis, central banks across the world have cut interest rates substantially. In Japan, the US, the Eurozone and elsewhere, short-term interest rates controlled by the central bank are at or close to zero.
There are two reasons why this may have happened.
Topics: Global crisis
Tags: ECB, global crisis, monetary policy, zero lower bound
The ECB: Gestures and credibility
Guido Tabellini, 26 May 2010
Improvisation in handling the crisis in Greece has given the impression that governments and European institutions are not capable of facing the toughest challenges. This column reminds us that in times like these, the credibility of institutions is essential and rests on consistency. The ECB decision to "sterilise" the purchase of bonds with inverse operations to drain liquidity puts this credibility at risk.
The currency crisis that is affecting Europe is fuelled by several economic factors such as the fear of insolvency by Greece,
Topics: Europe's nations and regions
Tags: ECB, Eurozone crisis, Fiscal crisis
Monetary policy in exceptional times and the economic implications of phasing out in the Eurozone
Michele Lenza, Lucrezia Reichlin, 16 February 2010
What effects have the recent exceptional monetary policy interventions had on loans and unemployment, and what are the possible effects of phasing them out? This column provides quantitative estimates for the Eurozone, arguing that that the exceptional policies affect the economic via the spread between the policy rate and the market rate on overnight deposits rather than through their effect on the monetary base.
In response to the global financial crisis, central banks have reacted in a number of novel and innovative ways. Recently, some economists have started to assess the effects of these measures (e.g.
Topics: Monetary policy
Tags: ECB, market spreads, monetary policy
Eurozone monetary policy in uncharted waters
Emil Stavrev, Martin Cihák, Thomas Harjes, 15 January 2010
The global crisis forced central banks to take unconventional measures. This column says that the ECB’s “enhanced credit support” helped support the transmission of monetary policy by reducing money market term spreads. The substantial increase in the ECB’s balance sheet also likely contributed to a reduction in government bond term spreads and a somewhat flatter yield curve.
In response to the financial crisis and its fallout on economic activity, inflation, and inflation expectations, central banks around the globe flooded markets with liquidity and slashed interest rates to unprecedented low levels. The ECB led the way in actively providing financial markets with massive amounts of liquidity.
Topics: Macroeconomic policy
Tags: ECB, eurozone, monetary policy
Adjustments to the accountability and transparency of the European Central Bank
Sylvester Eijffinger, 24 October 2009
Governments are restructuring their financial supervision systems. This column warns that the proposed new structure for European financial supervision is poorly coordinated and will not help in a systemic crisis. It discusses how the ECB might coordinate macro-prudential supervision in the euro area.
It is widely agreed that central banking should not be subject to "political business cycles". Consequently, in the last decades, it has become an integral part of modern central banking policy that full operational (or functional) independence of central banks is a welfare-enhancing quality.
Topics: EU institutions
Tags: Central Banks, ECB, financial supervision
Multinational banks and European financial integration: Lessons for supervision and regulation
Giorgio Barba Navaretti, Giacomo Calzolari, Guido Ferrarini, Alberto Franco Pozzolo, 8 April 2009
The crisis has brought multinational banks and their cross-border activities to the forefront of European regulatory concerns. This column argues that such banks are critical to successful EU financial integration and says that the appropriate response is to establish multinational regulation to match multinational banks. It proposes a European System of Banking Supervision and harmonisation of regulating banking groups.
Multinational banks are a crucial piece of the puzzle in the flurry of proposals for European financial reform. The size and cross-border operations of these institutions are seen by some as amplifying the effects of wrong management choices and practices and making the current crisis more systemic. That has cast doubts on the viability of this business model in the post-crisis world.
Topics: EU policies
Tags: banking regulation, ECB, EU
Europe in the eye of a crisis
Lans Bovenberg, Coen Teulings, 4 April 2009
Some analysts have argued that the European is poorly positioned to address the crisis since its economic integration has outpaced its integration of politics and governance. This column says that, in the face of the crisis, Europe must now decide between political integration and economic disintegration. It argues for EU-wide banking reforms, financial regulation, macroeconomic policies, and global coordination.
Europe is now at a crossroads: either closer political integration will support European economic integration or European markets will disintegrate at the cost of falling standards of living and rising international political tensions.
Topics: EU policies, Global crisis
Tags: Banking crisis, ECB, EU
Keep it simple
Carmine Di Noia, Stefano Micossi, 1 April 2009
What are feasible policy responses to the crisis? This column argues for simple but significant changes in international imbalances, financial regulation, global coordination, and micro-prudential regulation.
Tomorrow’s G20 meeting in London should not try to resolve everything. It must concentrate on what is urgent and, for the rest, start a process capable of producing a consensus on what must be corrected in the global governance of the economy and financial markets within reasonable deadlines.
Topics: EU policies, Global crisis, Global governance
Tags: ECB, financial regulation, G20
Fiscal dimensions of central banking: the fiscal vacuum at the heart of the Eurosystem and the fiscal abuse by and of the Fed: Part 2
Willem Buiter, 25 March 2009
The last column in this series on fiscal aspects of central banking reviews the differences in fiscal backing for the Bank of England, the US Federal Reserve, and the European Central Bank.
The Bank of England
Topics: Monetary policy
Tags: Bank of England, ECB, Fed, fiscal backing
Fiscal dimensions of central banking: the fiscal vacuum at the heart of the Eurosystem and the fiscal abuse by and of the Fed: Part 3
Willem Buiter, 25 March 2009
The third column in this series discusses the ECB’s lack of fiscal backing in detail and suggests three ways in which it might be provided by EU governments.
An entirely valid reason for the ECB/Eurosystem to refuse to engage in either outright purchases of private securities or in unsecured lending to the banking sector (or to the non-financial enterprise sector directly), is that there is no ‘fiscal Eurozone’ – just as there is no fiscal EU. The absence of a fiscal Europe that matters here is a narrow one.
Topics: Monetary policy
Tags: ECB, Eurosystem, fiscal Europe, wnt