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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 ...
Monetary policy implementation: common goals but different practices
While the goals that guide monetary policy in different countries are very similar, central banks diverge in their methods of implementing policy. This study of the policy frameworks of four central banks?the Federal Reserve, the European Central Bank, the Bank of England, and the Swiss National Bank?focuses on two notable areas of difference. The first is the choice of an interest rate target, a standard feature of conventional monetary policy. The second is the choice of instruments for managing the central banks? expanded balance sheets?a decision made necessary by the banks? ...
Panel discussion: inflation targeting
Decision time for European Monetary Union
If the plans of European governments for economic and monetary union by the end of the decade are realized, a new common currency called the euro will be in use in at least a few western European countries within five years. Even earlier, starting in 1999, a new European Central Bank is slated to take control of monetary policy in the initial member countries. ; This article examines the economic and political factors that will determine whether monetary union proceeds on schedule and, if so, which countries are likely to be initial members. There is little chance that most of the countries ...
Interview with Jean-Claude Trichet
The European Central Bank president and Minneapolis Fed President Gary Stern discuss ECB accomplishments and challenges, as well as issues of concern to both central banks.
An empirical comparison of Bundesbank and ECB monetary policy rules
We estimate a monetary policy reaction function for the Bundesbank and use it as a benchmark to assess the monetary policy of the ECB since the launch of the euro in January 1999. We find that euro interest rates are low relative to this benchmark. We consider several possible reasons for this, including the divergence between core and headline inflation, inflation having turned out to be higher than could have been foreseen by the ECB and the possibility that the ECB is focussing only on macroeconomic conditions in a subset of member countries. We argue that these potential explanations ...
Measurement bias in the HICP: what do we know and what do we need to know?
The Harmonized Index of Consumer Prices (HICP) is the primary measure of inflation in the euro area, and plays a central role in the policy deliberations of the European Central Bank (ECB). The ECB defines its Treaty mandate of price stability as "?a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2 percent [?] to be maintained over the medium term." Among the rationales given for defining price stability as prevailing at some positive measured inflation rate is the possibility that the HICP as published incorporates measurement errors of ...