scholarly journals An Interest Stabilisation Mechanism to Unburden the ECB

2021 ◽  
Vol 56 (5) ◽  
pp. 274-277
Author(s):  
Ivo Arnold
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Interest Rate ◽  
Euro Area ◽  
Sovereign Debt ◽  
Bond Market ◽  
Price Stability ◽  
Interest Spreads ◽  
Fiscal Dominance ◽  
Interest Rate Spreads

AbstractFollowing the twin crises of sovereign debt and COVID-19, the ECB risks being stuck in a situation of fiscal dominance, in which monetary policy is subordinated to the needs of finance ministers. A strong post-COVID-19 recovery may increase inflationary pressures, requiring a shift towards a less accommodative monetary policy stance. A tightening of monetary policy may, however, lead to a widening of interest rate spreads and new bond market tensions in the euro area. This article argues that the credibility of the ECB is undermined if it is perceived as aiming to close interest spreads. Interest spreads between euro countries arising from fiscal concerns should be a matter of fiscal policy, not monetary policy. The establishment of an interest stabilisation mechanism would allow the ECB to restore monetary dominance and to focus on maintaining price stability.

scholarly journals The Unpleasant Arithmetic of the Taylor Rule

2020 ◽  
Vol 8 (3) ◽  
pp. p89
Author(s):  
Alejandro Rodriguez-Arana
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Phillips Curve ◽  
Taylor Rule ◽  
Independent Component ◽  
Elasticity Of Substitution ◽  
Interest Rate Rule

This paper analyzes the effect of a monetary policy that raises the reference interest rate in order to reduce inflation in a situation where the fiscal policy parameters remain constant. In an overlapping generation’s model and in the presence of an accelerationist Phillips curve and a Taylor rule of interest rates, it is observed that increasing the independent component of said rule leads to a solution that at least in a large number of cases is unstable. In the case where the elasticity of substitution is greater than one, inflation falls temporarily, but then it can increase in an unstable manner. One way to achieve stability is to establish an interest rate rule where Taylor’s principle is not met. However, in this case many times the increase in the independent component of this rule will generate greater long-term inflation.

scholarly journals Can Interest Rate Spreads Stabilize the Euro Area?

2014 ◽  
Author(s):  
Michal Brzoza-Brzezina ◽  
Jacek Kotlowski ◽  
Kamil Wierus
Keyword(s):  
Interest Rate ◽  
Euro Area ◽  
Interest Rate Spreads

scholarly journals Which News Moves the Euro Area Bond Market?

2009 ◽  
Vol 10 (1) ◽  
pp. 1-31 ◽  
Author(s):  
Magnus Andersson ◽  
Szabolcs Sebestyén ◽  
Lars Jul Overby
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
Bond Market ◽  
Bond Markets ◽  
Market Responses ◽  
Macroeconomic Announcements ◽  
Bond Futures

AbstractThis paper explores a long dataset (1999-2005) of intraday prices on German long-term bond futures and examines market responses to major macroeconomic announcements and ECB monetary policy releases. German bond markets tend to react more strongly to the surprise component in US macro releases compared with aggregated and national euro area and UK releases, and the strength of those reactions to US releases has increased over the period considered. We also document that the numbers of German unemployed workers consistently have been known to investors before official releases.

scholarly journals Safe Assets, Liquidity, and Monetary Policy

2017 ◽  
Vol 9 (2) ◽  
pp. 182-227 ◽  
Author(s):  
Pierpaolo Benigno ◽  
Salvatore Nisticò
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Risk Sharing ◽  
Balance Sheet ◽  
Multiple Assets ◽  
Interest Rate Spreads ◽  
The Interest Rate ◽  
Liquidity Shock ◽  
Deep Recession

This paper studies monetary policy in models where multiple assets have different liquidity properties: safe and “pseudo-safe” assets coexist. A shock worsening the liquidity properties of the pseudo-safe assets raises interest rate spreads and can cause a deep recession-cum-deflation. Expanding the central bank’s balance sheet fills the shortage of safe assets and counteracts the recession. Lowering the interest rate on reserves insulates market interest rates from the liquidity shock and improves risk sharing between borrowers and savers. (JEL E31, E32, E43, E44, E52)

scholarly journals Taxes and the Structure of Production

1998 ◽  
Vol 16 (2) ◽  
pp. 145-159 ◽  
Author(s):  
Walter Block
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Interest Rate ◽  
Business Cycle ◽  
Time Preference ◽  
Causal Relation ◽  
Austrian Business Cycle ◽  
The Business Cycle ◽  
The Interest Rate ◽  
Structure Of Production

Abstract In Austrian theory, the business cycle is caused by expansive monetary policy, which artificially lowers the interest rate below equilibrium rates, necessarily lengthening the structure of production. Can tax alterations also cause an Austrian business cycle? Only if they affect time preference rates, the determinant of the shape of the Hayekian triangle. It is the contention of this paper that changes in taxes possibly can (but need not) impact time preference rates. Thus there may be a causal relation between fiscal policy and the business cycle, but this is not a necessary connection, as there is between monetary policy and the business cycle. This is contentious, since some Austrians argue that there is a praxeological link between tax policy and time preference rates.

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