Category Archives: Monetary policy

Are ECB’s Greek bond purchases really irrelevant for the private sector?

Motivated by the current discussions about the Greek debt problems, Paul De Grauwe and Yuemei Ji have a VoxEu column addressing “Why the ECB should not insist on repayment of its Greek bonds”. In a debate that currently is, and has been for a long while, marred by political idiosyncrasies and ethnic stereotypes of the worst kind, it is a sound and healthy contribution based on basic public accounting. In all fairness, however, the authors cannot help contributing to the nationalistic platitude by making snide remarks about “hard-working German tax payers”. Also, in an earlier VoxEu column on the same subject they almost question the intellectual sanity of German economics … Continue reading

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Taylor legislation? Rules versus discretion misunderstood

John B. Taylor is one of the profession’s most recognized macroeconomists, and for good reason. He has made numerous contributions to theories on wage and price formation and monetary policy. Many concepts are so central that they carry his name. “Taylor contracts” (staggered nominal wage or price contracts that are a central ingredient in many macroeconomics models), “Taylor curves” (curves that simply illustrate the feasible monetary policy trade offs), and, of course, the “Taylor Rule”, which is a specification of a nominal interest rate rule for a central bank. Originally mentioned in a 1993 paper, Taylor showed that the simple rule—that recommends that the nominal interest rate adjust to inflation … Continue reading

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Posted in Economists, Macroeconomics, Monetary policy | Tagged , , , , , | 19 Comments

The case for negative nominal interest rates and how to attain them: Revisiting the Buiter-Eisler approach

Recently, I discovered that the debate on possibly removing the zero lower bound on nominal interest rates is quite hot in some blog circles in the US. For example, Miles Kimball is writing a lot about it these days, and I thought I would chime in with a piece I did on the issue a few years ago. It was written for a students’ blog at my department in Danish, and took the form of a run through of the arguments as Willem Buiter had presented them. Hence the title “Willem and the negative nominal interest rates”. Actually, Miles Kimball encouraged me to translate the Danish version, and I thank … Continue reading

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No Negative Rates in Euroland (yet)

Today, the ECB decided not to continue their decrease in interest rates implemented on May 8. All rates remained unchanged, so no new territory was explored. In particular, deposit rates remain at zero, so no negative rates were implemented. Apparently the 0.25 basis point cut on main refinancing operations in May was considered sufficient. It just seem a bit “to little to late” in the current situation, when the ECB simultaneously revised output projections downwards, and stressed that the risks are on the downside. Draghi emphasized at today’s press conference that no measure was set aside permanently, thereby signaling that a further cut cannot be ruled out. He also did … Continue reading

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Posted in Macroeconomics, Monetary policy | Tagged , , | 1 Comment

Happy 2013

Hi. I haven’t been too active lately here. Been busy doing proper academic work like teaching and research. I may become more active next year, but I will stick to my principle that one doesn’t have to have an opinion, and vent it, about everything. Actually, the day where the news on TV announce that they cut their program short by 15 minutes due to lack of interesting news, or when a newspaper come in a short, cheaper edition during summer due to lack of important stuff to write about, then I will be happy. Too many just write because they want to write, or have an obligation to write. … Continue reading

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The ECB in Slovenia: Transparency about what?

The meeting of the ECB’s Governing Council was last Thursday hosted by Slovenia, but the procedures were the usual. Compared to last month’s meeting, however, where everything was about fiscal policy, the very first question at the press conference actually dealt with monetary policy. Triggered by the (expected by most) decision to keep policy rates unchanged, a reporter asked: Two short questions, Mr Draghi. The first one: you mentioned downside risks to the economy again. Have there been any discussions today about a possible rate cut in the months to come? And the second one on Spain: do you find Spanish bond yields appropriate at the moment or are they … Continue reading

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QE3 and the FED: State-contingency and commitment emphasized

Today the Board of Governors of the Federal Reserve System published its decision to start a new round of quantitative easing and a revised announcement concerning the Federal Funds rate. Both legs of this decision have some interesting new aspects that show a central bank continually trying to expand the toolbox of monetary policy, and to be honest about its limitations when acting in an uncertain world. More specifically, the Fed re-introduces purchases of mortgage-backed securities (MBS) at a rate of $40 billion per month. No end date for the purchases is specified—at the contrary, it is emphasized that it will be extended if the economy does not pick up. … Continue reading

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From SMP to OMT: ECB commits to destroy monetary transmission

This is not a humorous title, and this is not a funny post. A couple of days ago, the ECB announced after its Governing Council meeting that it would initiate a new program of sovereign debt purchases. The program is named Outright Monetary Transactions, which adds OMT to the endless list of acronyms that has emerged after the onset of the financial crisis. The program replaces the Securities Markets Programme (SMP), or, rather, extends it in a number of directions. As mentioned in my post on the last ECB policy meeting, its need for emphasizing that what it does is not illegal strikes me as odd if not suspicious. At … Continue reading

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