Legal structure, financial structure, and the monetary policy transmission mechanism
Among the many challenges facing the new Eurosystem - the European Central Bank and the central banks of the eleven members of the European Monetary Union - is the possibility that participating countries will respond differently to interest rate changes. This paper provides evidence that differences in financial structure are the proximate cause for these national asymmetries in monetary policy transmission and that these differences in financial structure are a result of differences in legal structure. The author concludes that unless legal structures are harmonized across Europe, the ...
In January 1999, the new European Central Bank began manufacturing a new money-the euro-and took over the operations of 11 nations' monetary systems. This Commentary outlines the ECB's institutions and operations, exploring some of the political economy issues that face the new central banking arrangement.
Regional influences on U.S. monetary policy: some implications for Europe
This paper looks at the monetary policy decisions of the U.S. Federal Reserve and asks whether those decisions have been influenced solely by national concerns, or whether regional factors have played a role. All of the Federal Reserve's policymakers have some regional identity, i.e., either their positions explicitly carry some regional affiliation or their region of origin is a factor that must be considered in the selection process. This research is relevant for the Fed, and it may also be relevant for Europe's fledgling central bank in Frankfurt. Critics have asserted that ECB ...
Milton Friedman, the demand for money, and the ECB’s monetary policy strategy
The European Central Bank (ECB) assigns greater weight to the role of money in its monetary policy strategy than most, if not all, other major central banks. Nevertheless, reflecting the view that the demand for money became unstable in the early 2000s, some commentators have reported that the ECB has ?downgraded? the role of money demand functions in its strategy. This paper explains the ECB?s monetary policy strategy and shows the considerable influence of Milton Friedman?s contributions on the formulation of that strategy. The paper also provides new evidence on the stability of euro area ...
The Liquidity Effects of Official Bond Market Intervention
To "ensure depth and liquidity," the European Central Bank in 2010 and 2011 repeatedly intervened in sovereign debt markets through its Securities Markets Programme. These purchases provide a unique natural experiment for testing the effects of large-scale asset purchases on risk premia arising from liquidity concerns. To explore how official intervention influences liquidity premia, we develop a search-based asset-pricing model. Consistent with our model's predictions, we find statistically and economically significant stock and flow effects on sovereign bonds' liquidity premia in response ...
Unconventional Monetary Policy and International Interest Rate Spillovers
After the 2008 global financial crisis, advanced economies turned to unconventional monetary policies to provide additional monetary stimulus while short-term interest rates were constrained by their effective lower bound. However, the speed of economic recovery differed markedly among these economies, leading to differences in the timing and intensity of unconventional monetary policies across central banks. These differences may have generated “spillover effects” that undermined policy tightening in the United States after 2015.Karlye Dilts Stedman assesses whether monetary policies ...
European Monetary Union faces tough decisions
From Bagehot to Bernanke and Draghi: emergency liquidity, macroprudential supervision and the rediscovery of the lender of last resort function
Remarks at the Committee on International Monetary Law of the International Law Association Meeting, Madrid, Spain.