After AQR and stress tests – where next for banking in the Eurozone?

Thorsten Beck 10 November 2014

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The ECB has concluded and published the results of a year-long painstaking process to go through the books of the 130 largest and most important banks of the Eurozone, adjusting balance sheets and testing the sensitivity of their capital position to two different scenarios, one of which includes a severe economic downturn. This exercise constitutes the entry point to the Single Supervisory Mechanism (SSM), where the ECB has direct supervisory responsibility for most of these 130 banks and indirect responsibility for the rest of the banks in countries that are members of the SSM.

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Topics:  Financial markets

Tags:  ECB, eurozone, banking union, stress tests, Asset Quality Review, forbearance, recapitalisation, balance sheets, leverage, bank resolution

How to climb a mountain with both hands tied

Jean Pisani-Ferry 07 November 2014

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Against the background of lacklustre global demand, economic growth in Europe has weakened again. In the Eurozone, a third recession in less than seven years is a distinct possibility. Yet economic policy looks powerless. On the monetary side, although the ECB may still embark on a genuine programme of quantitative easing, such action is unlikely to deliver a major boost because the benchmark 10-year government bonds already yield just 1%.

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Topics:  Environment EU policies Macroeconomic policy Microeconomic regulation

Tags:  Europe, eurozone, recession, stimulus, monetary policy, quantitative easing, fiscal policy, structural reforms, labour market reforms, liquidity trap, investment, Cash for clunkers, scrapping subsidies, environment, regulation, emissions standards

Macroeconomic policy mix in the transatlantic economy

Moreno Bertoldi, Philip R. Lane, Valérie Rouxel-Laxton, Paolo Pesenti 24 October 2014

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The reason why the macroeconomic policy mix has been different on the two sides of the Atlantic in recent years remains a hotly debated issue. Was it due to a different reading of the root causes of the Global Crisis and, therefore, of the type of policy response considered most appropriate?

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Topics:  Global crisis Macroeconomic policy

Tags:  eurozone, US, macroeconomic policy, transatlantic economy, global crisis

What macroeconomic policies for the Eurozone?

Francesco Giavazzi, Guido Tabellini 25 September 2014

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In his recent article on Vox, Roberto Perotti takes issue with the proposal of coordinating a monetary and fiscal expansion in the Eurozone through a money-financed temporary tax cut, which we advocated in a column on 21 August (see Perotti 2014, Giavazzi and Tabellini 2014). He does not question the effectiveness of the proposal in stimulating aggregate demand.

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Topics:  Macroeconomic policy Monetary policy

Tags:  eurozone, Eurozone economy, macroeconomic policy, Budget deficit, fiscal expansion

Eurozone recovery: there are no shortcuts

Roberto Perotti 13 September 2014

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The consensus is increasing that austerity has not worked – Europe stands on the edge of deflation and suffers from a deficit of demand. A recent VoxEU proposal (Giavazzi and Tabellini 2014) offers a solution that is widely shared on both sides of the Atlantic – all Eurozone countries should cut taxes simultaneously by 5% of GDP, and the ECB should buy the extra debt without sterilisation. This should be accompanied by a credible plan to reduce government spending in the future.

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Topics:  Macroeconomic policy Monetary policy

Tags:  austerity, eurozone, monetary policy, helicopter money, quantitative easing, QE, stimulus, fiscal consolidation, fiscal policy, spending cuts, fiscal sustainability, debt monetisation

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

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

Pricing to market and Eurozone membership: Evidence from Latvia

Alberto Cavallo, Brent Neiman, Roberto Rigobon 22 August 2014

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What happens to prices when a country joins a currency union? And do prices behave differently in pegged exchange rate regimes compared to common currency areas? The answer to this question is a critical input to a country’s choice of currency regime.

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Topics:  Europe's nations and regions

Tags:  eurozone, Latvia, pricing, currency membership

Lessons from history for the European Financial Crisis

Selin Sayek, Fatma Taskin 05 July 2014

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As of July 2014, we continue to debate whether the European economy is out of the woods. The effectiveness of policies and the prospects of full recovery are under scrutiny. The unique nature of Europe’s monetary union begets further questions of whether policies should be designed to resolve a single euro crisis, or whether they should be designed to resolve multiple European crises occurring simultaneously. A discussion of whether the sui generis European project has led to a sui generis set of financial crises would provide a framework for these policy discussions.

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Topics:  Economic history Europe's nations and regions Global crisis

Tags:  eurozone, financial crisis, EZ crisis, GIIPS

The euro crisis: Muddling through, or on the way to a more perfect euro union?

Joshua Aizenman 03 July 2014

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The short history of the Eurozone has been remarkable and unprecedented – the euro project has moved from the planning board to a vibrant currency within less than ten years. Otmar Issing’s optimistic speech in 2006 reflects well the buoyant assessment of the first decade of the euro – an unprecedented formation of a new currency without a state.1 Observers viewed the rapid acceptance of the euro as a viable currency and the deeper financial integration of the Eurozone and the EU countries as stepping stones toward a stable and prosperous Europe.

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Topics:  Institutions and economics International finance Monetary policy

Tags:  Germany, ECB, eurozone, inflation targeting, euro, institutions, Eurozone crisis, GIIPS

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