The 20th anniversary of Economic and Monetary Union (EMU) offers an opportunity to look back on the record of the European Central Bank (ECB) and learn lessons that can improve the conduct of policy ...in the future. This volume charts the way the ECB has defined, interpreted, and applied its monetary policy framework—its strategy—over the years from its inception, in search of evidence and lessons that can inform those reflections. Our ‘Tale of Two Decades’ is largely a tale of ‘two regimes’: one—stretching slightly beyond the ECB’s mid-point—marked by decent growth in real incomes and a distribution of shocks to inflation almost universally to the upside; and the second—starting well into the post-Lehman period—characterized by endemic instability and crisis, with the distribution of shocks eventually switching from inflationary to continuously disinflationary. We show how the most defining feature of the ECB’s monetary policy framework, its characteristic definition of price stability with a hard 2 per cent ceiling, functioned as a key shock absorber in the relatively high-inflation years prior to the crisis, but offered a softer defence in the face of the disinflationary forces that hit the euro area in its aftermath. The imperative to halt persistent disinflation in the post-crisis era therefore called for a radical, unprecedented policy response, comprising negative policy rates, enhanced forms of forward guidance, a large asset purchase programme and targeted long-term loans to banks. We study the multidimensional interactions among these four instruments and quantify their impact on inflation and the macroeconomy.
We assess the yield impact of asset purchases within the European Central Bank׳s (ECB) Securities Markets Programme (SMP) in five euro area sovereign bond markets from 2010–11. In addition to large ...announcement effects, we find an impact of approximately −3 basis points at the five-year maturity for purchases of 1/1000 of the outstanding debt. Bond yield volatility and tail risk are lower on intervention days for most SMP countries. A dynamic specification points to both transitory and long-run effects. Purchases improved liquidity conditions and reduced default-risk premia, while the signaling of future low interest rates did not play a role.
Abstract
We investigate whether monetary policy announcements affect firms' and consumers' expectations by considering their media treatment. We initially use standard monetary policy surprise ...measures and analyze how the main general newspapers in France report on the announcements. Eighty‐five percent of the monetary policy surprises are either not associated with the newspapers reporting a change in the monetary policy stance or have a sign inconsistent with the media report. Only when we consider media‐consistent monetary policy surprises do we find that consumers and firms respond to monetary policy announcements. The economic tonality of the media reports drives the sign of consumers' response.
Who Borrows from the Lender of Last Resort? DRECHSLER, ITAMAR; DRECHSEL, THOMAS; MARQUES-IBANEZ, DAVID ...
The Journal of finance (New York),
October 2016, Volume:
71, Issue:
5
Journal Article
Peer reviewed
We analyze lender of last resort (LOLR) lending during the European sovereign debt crisis. Using a novel data set on all central bank lending and collateral, we show that weakly capitalized banks ...took out more LOLR loans and used riskier collateral than strongly capitalized banks. We also find that weakly capitalized banks used LOLR loans to buy risky assets such as distressed sovereign debt. This resulted in a reallocation of risky assets from strongly to weakly capitalized banks. Our findings cannot be explained by classical LOLR theory. Rather, they point to risk taking by banks, both independently and with the encouragement of governments, and highlight the benefit of unifying LOLR lending and bank supervision.
The Agreement on Net Financial Assets (ANFA) is an important element of the European Economic and Monetary Union (EMU) and is supposed to grant national central banks a large degree of autonomy in ...the management of some of its assets and liabilities. Until the turn of 2015 and 2016, very little was known about both this agreement and the way it works. It was not until the eruption of the last phase of the Greek crisis in 2015 when certain rumours started to circulate, according to which the ANFA was to become an instrument aimed to alleviate fiscal tensions. This kind of claims incentivized the ECB in February 2016 to disclose the content of the ANFA. If all the rumours concerning the possibilities of financing debt proved to be unfounded, the ANFA seems not only to grant autonomy in the management of a given national central bank’s assets and liabilities, it also offers room for these banks to manage their liquidity needs. This paper is aimed at presenting the importance of the net financial assets (NFAs which are the subject of the ANFA) for the Eurosystem from two different perspectives. The first one focuses on the NFA perception from the point of view of the balance sheet of different national central banks which are part of the Eurosystem. The second scrutinises the link involving net financial assets and liquidity management. The conclusions drawn upon the content of this paper indicate that thanks to the ANFA, national central banks enjoy a large degree of autonomy within the Eurosystem, and its use helps to preserve integrity of the EMU.
The economic effects of the Covid-19 pandemic have placed a renewed strain on the economic governance of the European Union (EU). The European Central Bank (ECB) was a key player in the EU's response ...to the crisis induced by the pandemic. This paper adopts a theoretical approach focused on policy learning to explain how and why the ECB responded to the crisis in 2020-2021. By drawing on speeches, newspaper articles and interviews with policy-makers, the paper finds that the ECB was able to rely on earlier crisis experiences in the euro area in forming its response to the pandemic crisis. Although the sovereign debt crisis and the pandemic crisis had both similarities and differences from one another, the ECB was able to engage in inter-crisis and intra-crisis learning. Its learning concerned objectives, instruments as well as an awareness that timely and forceful response was crucial, so that the member states and other EU institutions had time to act.
The aim of the undertaken research is an attempt to explain, on theoretical and empirical grounds, the interdependence between central bank communication, its transparency credibility ...and,consequently, the effectiveness of monetary policy pursued by central banks. The study used research methods based on the literature analysis on the subject in the field of banking and finance, as well as statistical and econometric methods (Granger causality analysis and the generalised linear model – GLM). Literature studies are aimed at answering the question of what is the relationship between the transparency, credibility of the central bank and the effectiveness of monetary policy in theoretical terms. However, the empirical research studies aim to confirm the hypothesis (H0) or reject the hypothesis (H1) about the causal relationships between the variables mentioned. Empirical analyses were conducted on the example of the European Central Bank, which, from the point of view of its monetary policy, is characterised by relatively high efficiency, relatively effectively stabilising inflation in the monetary union. All statistics used in the study were taken from databases of the International Monetary Fund (IMF World Economic Outlook), the European Union statistical office (Eurostat) and the Organisation for Economic Cooperation and Development (OECD) (OECD Data). The analysis covers the period from 2010 to 2022 based on monthly data. The results of the research confirmed the existence of the null hypothesis (i.e., the significant impact of communication, transparency and credibility of the European Central Bank on the effectiveness of monetary policy in the Euro area). The results of the conducted research may be a starting point for further, more in-depth research on the relationship between communication, transparency, credibility and effectiveness of central banks in countries with different levels of economic development.
This article examines the ways in which EU actors have engaged in incremental changes to the eurozone rules 'by stealth' ‒ that is, by reinterpreting the rules and recalibrating the numbers without ...admitting it in their public discourse. Using the methodological framework of discursive institutionalism to focus on agents' ideas and discursive interactions in institutional context, the article links EU actors' reinterpretation of rules to their efforts to ensure greater legitimacy in terms of policy performance and governance processes as well as citizen politics. Using the normative theoretical framework of EU democratic systems theory, it analyses EU actors' considerations of legitimacy not only in terms of their policies' 'output' performance and citizens' political 'input' but also the 'throughput' quality of their governance processes. The article illustrates this by elaborating on the different pathways to legitimation of the European Central Bank and the European Commission.
This article assesses the impact of Quantitative Easing and other unconventional monetary policies followed by central banks in the wake of the financial crisis that began in 2007. We consider the ...implications of theoretical models for the effectiveness of asset purchases and look at the evidence from a range of empirical studies. We also provide an overview of the contributions of the other articles in this Feature.
Eurosystem macroprudential policies require shared action between national authorities and the European Central Bank (ECB). This has created the need for a common basis for macroprudential analysis ...and as result the Macroprudential Database (MPDB) was created by the ECB and the European Systemic Risk Board (ESRB) in 2015 in order to support the central bank's functions and ESRB's needs. This paper examines a multivariate binary logit Early Warning Model (EWM) for systemic banking crises with the aim to evaluate the predictive validity of the risk indicators included in the MPDB, as well as further variables not employed in previous relevant studies. The main finding is that most of the risk indicators employed from MPDB are important for forecasting from 4 to 1 years before the onset of a systemic banking crisis. Specific banking variables that capture industry concentration, assets, funding, and liquidity, are more important, on average, than macroeconomic variables. Important financial stress indicators such as CLIFS and SovCISS and economic expectations are also significant. The model is robust to various specifications and has a better performance when post-crisis observations are not included.
