Latest News
Is the ECB sacrificing reforms on the altar of inflation?
by Alessio Terzi (Bruegel), March 13th, 2015
“The question however remains as to whether QE will slow down reform efforts in the coming months and therefore, in boosting short-term demand, risks inadvertently shrinking long-term supply.” Read more…
The Troïka descends on Athens
by Euro Intelligence, March 13th, 2015
In Greece, “the ECB increases ELA once again, by €600m, to a total of €69.4bn - a drip-feed as one analyst called it”. Read more…
Why is deflation good news for Europe?
by Daniel Gros (Project Syndicate), March 11th, 2015
Many economists fear deflationary pressures in Europe. “But this fear is unfounded, because it is based on a misunderstanding. What matters for debt-service capacity is the debtors' income, not the general price level.” Read more…
The new 6am cut
by Amie Tsang (FT), March 11th, 2015
"The ECB’s quantitative easing programme and expected US interest rate increase are rippling through financial markets, pushing the euro to a near 12-year low against the dollar, edging closer to parity." Read more...
The impact of QE
by Euro Intelligence, March 11th, 2015
"Most money is not held in deposits, with a negative interest rate, but in tradable securities, where yield and price are related. From an investors’ point of view there is no such thing as a ZLB". Read more...
The FED under fire
by Barry Eichengreen, March 10th, 2015
"Bills subjecting the United States' central bank to “auditing" by the Government Accountability Office are likely to be passed by both houses of Congress. Legislation that would tie how the Fed sets interest rates to a predetermined formula is also being considered." Read more...
The below zero lower bound
by Jeremie Cohen-Setton, March 9th, 2015
"What’s at stake: The negative yields observed on some government and corporate bonds, as well as the recent move into further negative territory of monetary policy rates, are shaking our understanding of the ZLB constraint." Read more...
Crisis over, QE edition
by Euro Intelligence, March 6th, 2015
"We should note, though, that the financial sector is far from being in a position to sustain a truly broad-based economic recovery, and as Draghi noted himself the balance sheet adjustment is still happening." Read more...
Deflation, inflation, oil prices and asymmetries
by Simon Wren-Lewis (Mainly Macro), March 5th, 2015
"When both headline and core inflation rose above target after the financial crisis, helped by rising oil prices, the Fed and Bank of England kept their nerve and did not raise interest rates. They saw through what was a temporary episode. The ECB’s judgement was not as good." Read more...
How negative can rates go?
by Paul Krugman (The Conscience of a Liberal), March 3rd, 2015
"We now know that interest rates can, in fact, go negative; those of us who dismissed the possibility by saying that people could simply hold currency were clearly too casual about it. But how low?" Read more...
ECB minutes: what they really tell us
by Charles Wyplosz (Vox EU), March 2nd, 2015
"Unsurprisingly, perhaps, the minutes do not include any major surprise. They mainly confirm previous leaks. Yet, they are helpful for all those who strive to understand the logic of Eurozone monetary policy, whether they are academics or investors." Read more...
Central Banks' Quasi-Fiscal Policies and Inflation
by Seok Gil Park, IMF (in International Journal of Central Banking), March 2015
"A DSGE model predicts that central banks’ balance sheet shocks affect inflation through private agents’ portfolio adjustments when fiscal authorities do not financially support central banks.Inthosecases,centralbankscannotsuccessfullyunwind inflated balance sheets and stabilize inflation during the implementationofexitstrategy".Read more...
Helicopter money and the government of central bank nightmares
by Simon Wren-Lewis (Mainly Macro), February 22nd, 2015
"If Quantitative Easing (QE), why not helicopter money? We know helicopter money is much more effective at stimulating demand". Read more...
Fact of the week - The tiny balance sheet impact of the TLTRO (charted)
by Huttl and Merler (Bruegel), February 20th, 2015
"ECB was in fact worried that “the total estimated take-up over all eight TLTRO operations was significantly lower than envisaged in September 2014”, and that this was one of the reason prompting the ECB to announce the additional asset purchases". Read more...
No, the Fed is not joining the currency war
by David Keohane (FT), February 20th, 2015
"Fair enough if you want to talk about QE and devaluation but the recently released FOMC minutes really don’t seem to be the place to start building your argument for a Fed jumping into the currency wars." Read more...
Disinflation in non-Eurozone EU nations
by Iossifiov and Podpiera (Vox EU), February 16th,2015
There exists "possible disinflationary spillovers from the Eurozone to other EU countries, in light of their close trade links". Read more...
Central Banks and the Bottom Line
by Barry Eichengreen and al. (Project Syndicate), February 12th, 2015
"Central banks' balance sheets are becoming an increasingly serious concern. [...] But should central banks really worry so much about balance-sheet profits and losses? The answer, to put it bluntly, is no." Read more...
The decline in inflation compensation
by Jeremy Cohen-Setton, February 6th, 2015
"While market measures of inflation compensation have declined on both sides of the Atlantic, Fed and ECB officials appear to have interpreted them differently." Read more...
The illusion of monetary policy independence under flexible exchange rates
by Sebastian Edwards (Vox Eu), February 4th, 2015
"I argue that, to the extent that central banks take into account other central banks’ policies, there will be ‘policy contagion’ and that, even under flexible rates, monetary policy will not be fully independent." Read more...
An Unconventional Truth
by Nouriel Roubini (Project Syndicate), February 1st, 2015
"Simply put, we live in a world in which there is too much supply and too little demand. The result is persistent disinflationary, if not deflationary, pressure, despite aggressive monetary easing. The inability of unconventional monetary policies to prevent outright deflation partly reflects the fact that such policies seek to weaken the currency, thereby improving net exports and increasing inflation. This, however, is a zero-sum game that merely exports deflation and recession to other economies [...]. Perhaps more important has been a profound mismatch with fiscal policy. " Read more...
The ECB and its critics
by Jean Pisani-Ferri (Project Syndicate), January 31st, 2015
"This is not to say that QE has no downside. It probably will create asset-price bubbles [...]. Moreover, QE probably will increase inequality."Read more
The Eurozone needs more than QE
by Martin Feldstein (Project Syndicate), January 28th, 2015
" QE’s success in the US reflected the Fed’s ability to drive down long-term interest rates. In contrast, long-term interest rates in the eurozone are already extremely low, with ten-year bond rates [...]. So the key mechanism that worked in the US will not work in the eurozone." Read more...
The ECB's QE decision
by Marco Annunziata (Vox EU), January 23rd, 2015
"The limited risk-sharing sends a message. As long as fiscal policy is national, the risk of government debt should stay largely within national borders." Read more...
800 bn euros QE and target linked. Solid but no bazooka
by Euro Intelligence, January 23rd, 2015
"Compared to QE in the US and the UK, the programme is smaller in relative size; comes much later as inflation expectations have already decoupled; the housing market had a different structure than in the US and the UK, where it played a big role in the overall success of the pogramme and is sbject to risk demutualisation"Read more...
The ECB fired its bazooka
by Guntram Wolff and Silvia Merler (Bruegel), January 22nd, 2015
"The programme is large. This increases its effectiveness and will have a powerful impact especially through the exchange rate channel and the portfolio rebalancing channel". Read more...
The ECB's new macroeconomic realism
by Jeffrey Sachs (Project Syndicate), January 22nd, 2015
"Though QE cannot produce long-term growth, it can do much to end the ongoing recession that has gripped the eurozone since 2008." Read more...
How Super Mario was? (Wonkish)
by Paul Krugman, January 22nd, 2015
"So, Draghi’s big announcement seems to have raised expected European inflation by one-fifth of a percentage point. That’s actually a lot to accomplish under the circumstances, but it’s also far too little to turn Europe around on its own." Read more...
Quantitative easing in the eurozone requires shared risks
by Daniel Gros and Christian Kopf (Reuters), January 21st, 2015
"Leaving government bond purchases on the balance sheets of national central banks would not prevent cross-country loss-sharing in the event of another sovereign default in the euro area. On the contrary, it could even increase the probability that such an accident would happen again." Read more...
Quantitative easing in the eurozone: it is possible without fiscal transfers
by Paul De Grauwe and Yueimei Ji (VoxEu), January 15th, 2015
"The value at which the bonds are kept on the balance sheet of the central bank has no bearing for the taxpayer." Read more...
Sovereign QE and national central banks
by Guntram Wolf (Bruegel), January 13th, 2015
"Governments have a clear obligation to move ahead more quickly with structural reforms that address the deep divergences in the euro area and with more public investment to trigger growth. However, slow government progress cannot be an excuse for the ECB not to act." Read more...
Investors put €1.2tn into negative havens
by Christopher Thompson (FT), January th 2015
"Investors looking for haven assets are increasingly having to pay up for the safety they provide as the volume of negative-yielding eurozone government debt has swollen to a record €1.2tn." Read more...
Towards non risk-sharing QE - Enjoy !
by Euro Intellignce, January 9th 2015
"The compromise will be a non-risk sharing version of QE, where national central banks buy the debt of their own governments. The national central banks will buy the debt according to the capital share, but the risk remains on their own balance sheet." Read more...
BoE wonks on a limited amount of QE hunt
by Paul Murphy (FT Alphaville), January 5th, 2015
"We know instinctively that the Bank of England doesn’t like to be seen to be inflating stock market bubbles. That money printed for the purposes of quantitative easing might be flowing into the hands of existing equity holders (such as corporate executive management) would reinforce the wholly disagreeable notion that Britain’s central bank was actually fuelling the growth in wealth inequality." Read more...
Countdown to QE
by Euro Intelligence, January 5th, 2015
"We agree with Muellbauer that the effect of QE on the real economy will be quite small (unless it was done with overwhelming force, which won't be the case). Helicopter money is really the very last resource to be employed once everything else, including QE, fails." Read more...
Europe's trap
by Paul Krugman, January 5th, 2015
"One thing is not a risk, because it has already happened: the euro area has entered a Japan-style deflationary trap." Read more...
Stability and prosperity in monetary union
by Mario Draghi (Project Syndicate), January 2nd, 2015
"The (second) implication of the absence of fiscal transfers is that countries need to invest more in other mechanisms to share the cost of shocks [...]. A key part of the solution is to improve private risk-sharing by deepening financial integration. It is also about deepening capital markets, especially for equity, which is why we also need to advance quickly with a capital markets union [...]." Read more...
On the stupidity of demand deficient stagnation
by Simon Wren-Lewis (Mainly Macro), December 31st, 2014
“Why recessions caused by demand deficiency when inflation is below target are such a scandalous waste? It is a problem that can be easily solved, with lots of winners and no losers. The only reason that this is not obvious to more people is that we have created an institutional divorce between monetary and fiscal policy that obscures that truth.” Read more...
Helping the ECB cross the Rubicon
by Jean Pisani-Ferri (Project Syndicate), December 30th, 2014
"Though the ECB has resisted QE for more than five years, even as other major central banks embraced it, Executive Board member Benoît Coeuré has already called it the “baseline option.”Read more...
The Fed sets another trap
by Stephen Roach (Project Syndicate), December 23rd, 2014
"The Fed seems to be telegraphing a protracted journey on the road to policy normalization."Read more...
Is the ECB doing enough?
by Peter Praet (Project Syndicate), December 19th, 2014
"The ECB Governing Council has reiterated its unanimous commitment to use additional unconventional instruments within its mandate should it become necessary to address a prolonged period of low inflation, or should the monetary stimulus fall short of our intention to move our balance sheet toward its size in early 2012." Read more...
Central-bank credibility, reputation and inflation targeting in historical perspective
by Michael Bordo and Pierre Siklos (Vox Eu), December 12th, 2014
"The profession is still grappling with the nature of any trade-off that might exist between price stability and financial system stability. Part of the difficulty is that whereas the effects of various instruments of monetary policy are well understood, the same is not the case for the variety of so-called macro prudential tools being used." Read more...
Monetary impotence in context
by Simon Wren-Lewis (Mainly Macro), December 20th, 2014
"Just as price rigidity kills short run monetary neutrality, so does Ricardian Equivalence in an inflation targeting liquidity trap world. So here is modern microfounded macroeconomic theory providing support to increasing government spending rather than monetary policy in a liquidity trap." Read more...
TLTRO spoils Christmas holidays at the ECB
by Silvia Merler (Bruegel), December 12th, 2014
"Excess liquidity in the euro area is shrinking to record low levels (figure 2), and the effect of the weapon on which the ECB had pledged a non-negligible portion of its reputational capital look tiny (at best)". Read more...
Another day in the eurozone
by Euro Intelligence, December 12th, 2014
"A disappointing TLTRO auction, deflation in France, another set of horrible economic data from Italy, and the return of Grexit talk are all heavily conspiring towards QE, with a formal decision due on January 22." Read more...
The ECB winter of discontent
by Silvia Merler (Bruegel), December 5th, 2014
"It was the last meeting before Christmas at the ECB, as well as the first in the new premises and the last with a non-rotating voting system. It ended with no action, a controversial twist in the language and a sense of dissenting views on QE." Read more...
Central bank rates deep in shadow
by Z. Darvas (Bruegel), December 5th, 2014
"Shadow rate calculations suggests that the ECB’s policy stance is still much tighter than the monetary policy stance in the US and UK". Read more...
QE on the way
by Euro Intelligence, December 5th, 2014
"For us, what happened yesterday was a pre-decision towards QE. Draghi now has a plan, and he has a sufficient consensus behind him". Read more...
Money supply - Dudley, the FED & financial markets
by Robin Harding (FT), December 1st, 2014
"Could unexpectedly low levels of Treasury yields, pushed down by monetary policy in Europe and Japan, lead the Fed to raise interest rates earlier and faster than it otherwise would?" Read more...
The end of artificially low rates
by Paul Krugman, November 28th, 2014
"The Fed ended QE last month. And today long-term rates settled at 2.18 percent, far below historical norms. Maybe rates weren’t artificially low, after all?" Read more...
On the brink of deflation
by Euro Intelligence, November 28th, 2014
"Germany and Spain produced some downright awful inflation figures, which mean that the eurozone must, as of now, be teetering on the brink of deflation". Read more...
ECB vice-president warns of bond-buying risks
by , November 27th, 2014 "The ECB governing council is set to decide in the first quarter of 2015 whether to broaden its asset purchases to include government debt. The hope is that aggressive monetary easing will counter the threat of a Japanese-style lost decade of economic stagnation". Read more...
China's monetary surprise
by Stephen Roach, November 22nd, 2014
"By cutting its benchmark policy interest rates, the People’s Bank of China (PBOC) has underscored the tactical focus of the government’s stabilization policy, which aims to put a floor of around 7% on GDP growth."
The right call
by The Economist, November 22nd, 2014
"China has cut interest rates for the first time in more than two years, a powerful signal that the government wants to step up support for the slowing economy". Read more...
Draghi and Mersch openly disagree on QE
by Euro Intelligence, November 18th, 2014
"Lots of “he said, she said”-type news yesterday, but with some interesting nuances. The differences within the ECB’s executive board came out in the open yesterday with contrasting speeches between Mario Draghi and Yves Mersch. Draghi, speaking in English, edged rhetorically a step closer to QE. Mersch, speaking in German, became more explicit in his opposition. In his presentation to the European Parliament, Draghi said that “Unconventional measures might entail the purchase of a variety of assets, one of which is sovereign bonds.” Read more...
Understanding Spillovers
by Olivier Blanchard and al., iMF Direct, November 12th, 204
"The challenges faced by policy coordination after the initial response to the crisis in 2009—illustrated by the debate on the impact of unconventional monetary policy in emerging economies—raise wide ranging issues on fiscal, monetary, and financial policies". Read more...
The ECB’s QE1, five years later, what’s the point?
by Veronique Riches-Flores, November 7th, 2014
"Will Mario Draghi, the President of the ECB, go through with a genuine quantitative easing program as he implied in his press conference on November 6th? It’s possible, especially if euro area inflation continues to fall, as we are predicting in the months to come, under the effect of falling oil prices, in particular. Besides the assurance of bigger and bigger liquidity injections to the financial sector, what impact would a potential QE plan have on the real economy"? Read more...
Does Money Matter in the Euro area? Evidence from a new Divisia Index
by Zsolt Darvas, November 6th, 2014
"Measuring the impact of monetary policy on the economy at the zero lower bound is difficult. The purpose of this paper is to examine the possible role of money shocks on output and prices in the euro area." Read more...
