Archive for the ‘European Central Bank’ Category
Sep 8th 2014, 16:22 by G.I. | WASHINGTON, D.C
Europe does not yet have its equivalent of Japan’s Abenomics, but Mario Draghi, president of the European Central Bank, pretty much advocated it in his press conference last week. Europe, he said, needs fiscal, monetary and structural policy working together, the three arrows of Abenomics. He acknowledged the ECB’s duty of getting inflation, now 0.3%, back up to its target of near 2%. But the ECB, he said, can’t rescue Europe alone: it needs help from fiscal and structural reforms.
Of course, he’s right that monetary policy can’t initiate fiscal consolidation or liberalize product and labour markets, and that both those things are essential to Europe’s long term health. But the ECB can help determine whether either of those things succeeds. For Europe’s fiscal and regulatory policy makers to do their jobs, it will help immensely if the ECB does its own.
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The European Central Bank should learn from the success of unconventional policies in America and Britain
In America and Britain, output and employment have surpassed their pre-crisis peaks and are growing solidly. But the picture in the rich world’s other two big economies is darker. In the second quarter Japanese output shrank sharply, largely because consumers had accelerated purchases in the first quarter in order to avoid a consumption-tax rise. The euro zone’s woes are harder to dismiss: second-quarter output was flat, and it remains no higher than it was in 2011. Read the rest of this entry »
Aug 23rd 2014, 4:14 by G.I. | JACKSON HOLE, WY.
The contradictory signals generated by American labour market data in the last year have provided grist for both hawks and doves at the Federal Reserve. For hawks, the rapid decline in the unemployment rate shows slack in the economy is disappearing so the Fed should tighten soon. For doves, the low rate of wage growth suggests there’s plenty of slack and tightening should wait.
Since becoming chair, Janet Yellen has usually been in the second camp, on balance interpreting the data as suggesting there wasn’t any urgency about raising rates. Her speech to the Kansas City Fed’s Economic Symposium on Friday in Jackson Hole, Wyoming struck a different tone. True, it covered both sides of the debate without coming down on either; Ian Shepherdson counted “1 coulds, 20 buts, 11 woulds, 7 mights, and a magnificent 56 ifs.” But she raised enough questions about the dovish case to suggest her own convictions are weakening. She was not telegraphing the case for raising rates soon. But it should be a wake-up call for investors who assume she would spin all the labour data that comes her way in a dovish direction. Read the rest of this entry »
May 2nd 2013, 19:20 by G.I. | WASHINGTON, D.C.
By credit policy (or banking policy or financial policy) I mean anything that affects how the financial system influences aggregate demand. Of course, we’ve always known aggregate demand depends on both the central bank’s policy rate and the spread over that rate paid by households and firms. But before the cirisis the relationship between the policy rate and what borrowers paid was assumed to be either constant, or endogenous to monetary policy or the business cycle.
Sep 6th 2012, 15:23 by G.I. | WASHINGTON
SINCE the euro crisis erupted, the European Central Bank has been torn between its legal and philosophical aversion to financing governments and its duty as lender of last resort. Today, it appears to have reconciled the two, erring on the side of the latter.
At the end of its governing council meeting today, the ECB announced the much-anticipated details of how it would resume intervening in the region’s government bond markets. Using its newly christened Outright Monetary Transactions (OMT), it will buy sovereign bonds of one- to three-year maturity, provided the issuing country has agreed to a fiscal adjustment programme with either the European Financial Stability Facility, or its successor, the European Stability Mechanism. Read the rest of this entry »
Feb 16th 2012, 19:16 by G.I. | WASHINGTON D.C.
Nov 11th 2011, 16:51 by G.I. | WASHINGTON
ASK any pundit why Italy is in crisis and they will mention some combination of Silvio Berlusconi, a towering national debt, and a moribund economy. The explanation resonates since all three have undeniably been enormous negatives for Italy. Today’s market action seems to vindicate the reasoning: with the prospect of a new government under Mario Monti and speedy implementation of a new budget, Italian bond yields have plummeted below 7%, and stocks around the world have rallied.
But these factors are not the root cause of the crisis and as long as Europeans behave as if they are, a resolution will elude them.
Italy has been burdened by Mr Berlusconi, a large national debt and a moribund economy for most of the past decade. As Daniel Gros points out, some of Italy’s key fundamentals—investment, R&D, educational attainment—have actually improved relative to Germany in that time. Yes, its debt remains a problem but, unlike Greece, it did not suddenly spiral out of control and was not, as far as we know, systematically underreported. As recently as 2009 Italy’s debt was 97% of GDP (it’s 100% now) and its deficit was 5% (compared to 4% this year, according to the IMF). Yet that year Italy could borrow at 4%, not much more than Germany, whereas now it must borrow at 6-7%, triple what Germany pays.
What changed is not Italy’s political or economic fundamentals but how investors perceive Italian debt. Read the rest of this entry »