QE in the Euro Zone: How Can It and Will it Work?

The quantitative easing (QE) programme launched by European Central Bank (ECB) has been hailed as a long awaited decision, and the latest ECB press releases are pretty happy with the results. However, QE raises nontrivial questions regarding its medium-term effectiveness net of concomitant facors. Firstly, assessment of experiences of QE forerunners (United States, United Kingdom, […]

Saving the Eurozone from Stagnation: Can Draghi Do it Alone?

With inflation declining and constantly undershooting forecasts, and the economies gripped by fiscal austerity, zero-lower bounded interest rates, and gloomy expectations, the Eurozone may have found itself caught into what Caballero and Fahri (2103) call a ‘safety trap’, i.e., an excess demand for safe assets (money and government bonds). Essentially, agents in the Eurozone have […]

Draghi Says Nothing New; Status Quo Persists at ECB

The ECB shrugged off called from the OECD and the IMF to ease policy. Nor did the ECB make technical moves, like reducing the rate corridor by cutting the 75 bp lending rate. By arguing that inflation expectations are firmly anchored, Draghi seems to have initially dampened speculation of more dramatic action next month. It does […]

Draghi Reiterates Forward Guidance

The most important take away from ECB President Mario Draghi’s initial remarks is that he has reiterated the forward guidance that rates will remain this low or lower for an extended period. There were some suspicions, given clear signs of an economic recovery, judging from the PMI data, which Draghi did acknowledge. Draghi also revealed […]

Bullard and the “Fiscalization” of Monetary Policy

I am struggling with the latest speech by St. Louis Federal Reserve President James Bullard.  The speech is titled  “The Global Battle Over Central Bank Independence,” but in the process confuses fiscal policy stabilization as necessarily a threat to central bank independence, travels down a bizarre road that appears to be a misunderstanding of European monetary […]

The Changing Winds

Policy makers are taking new measures to address the financial and economic crisis. The ECB’s OMT, the Federal Reserve QE3+ and the BOJ’s increase in its asset purchase program is the monetary response. To this we expect to be added a new round of gilt purchases by the Bank of England. Australia and Sweden, which […]