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We study the recent Australian experience with yield curve control (YCC) of government bonds as perhaps the best evidence of how this policy might work in other developed economies. We interpret the evidence with a simple model in which YCC affects prices of both government and other bonds via "broad" transmission channels, but only government bond prices through "narrow" liquidity channels. YCC seemingly worked well in 2020 while the market expected short rates to stay at zero for long. But as the global recovery and inflation gained momentum in 2021, liftoff expectations moved up, the Reserve Bank of Australia purchased most of the outstanding amount of the targeted government bond, and its yield dislocated from other financial market instruments. The model and empirical evidence point to narrow transmission channels playing more prominent roles than broad channels considered in prior studies of quantitative easing (QE), such as portfolio balance effects and signaling about short term rates. We argue that asset-specific narrow channels may be primary transmission mechanisms of quantity-based QE policies as well.

Die durch die große Finanzkrise induzierten hohen Schuldenquoten zwingen die Staaten zu Maßnahmen des Schuldenabbaus. Financial Repression bietet dafür Möglichkeiten. Sie entsteht, wenn staatliche Instanzen den Finanzmärkten Maßnahmen oktroyieren und manifestiert sich in erster Linie in niedrigen Realzinsen. Financial Repression wird als weiteres Charakteristikum einer 'neuen Normalität' der Weltwirtschaft mit niedrigen Potenzialwachstumsraten und Zinssätzen sowie hohen staatlichen Schuldenständen angesehen. Der Beitrag stellt dieses Charakteristikum vor und beurteilt seine empirische Relevanz. High levels of debt caused by the financial crisis are forcing countries to take measures to reduce debt. Financial repression is a debt reduction opportunity based on measures imposed on the financial markets by governments which manifests itself primarily in lower real interest rates. Financial repression is regarded as another characteristic of a 'new normality' in the global economy with low potential growth rates and low interest rates, high levels of public debt as a result of the financial crisis. The article describes this phenomenon and attempts to evaluate its empirical relevance.

Für Thomas Mayer, Deutsche Bank, erscheint es sinnvoll, dass die EZB den Leitzins auf sein neutrales Niveau hochführt. Noch wichtiger für die Wahrung der Stabilität des Euro wäre es aber, dass sich die EZB aus der Finanzierung von durch Insolvenz bedrohten Staaten und ihren Banken zurückzieht. Holger Schmieding, Berenberg Bank, sieht keine Inflationsgefahr. Er rechnet für Deutschland mit einem jährlichen Preisanstieg von gut 2%. Manfred Jäger-Ambroz.ewicz, Institut der deutschen Wirtschaft Köln, vertritt die Meinung, dass die EZB eine sachgerechte Leitzinspolitik umsetzt und einen angemessenen Leitzinspfad suggeriert. Michael Lamla und Jan-Egbert Sturm, ETH Zürich, betonen, dass die EZB genügend Glaubwürdigkeit und Transparenz besitzt, um die Inflationserwartungen zu beeinflussen und zu homogenisieren. Ihrer Ansicht nach steigen insgesamt die Inflationserwartungen im Euroraum für das nächste Jahr weiterhin an, ohne aber beunruhigende Werte anzunehmen. Auch Ulrich Kater, DekaBank, sieht die Glaubwürdigkeit des Inflationsregimes mit der Geldwertstabilität als wichtigster Zielsetzung unabhängiger Notenbanken nicht gefährdet. Leon Leschus, HWWI, geht davon aus, dass hohe Rohstoffpreise weiterhin zum Inflationsdruck beitragen werden. Es wäre somit wünschenswert, wenn die EZB ihre begonnene restriktive Geldpolitik fortsetzen würde. Hans Wolfgang Brachinger, Universität Fribourg, sieht angesichts teurer Rohstoffe, zunehmender Spekulation und steigender Produktionskosten in China die Inflationsrisiken in Deutschland wachsen, und zwar unabhängig vom Handeln der EZB.

Zusammenfassung Ausgehend von problematischen Immobilien-Finanzierungen in den USA hat sich vor allem mittels Verbriefungsstrukturen eine Finanzkrise entwickelt und ausgebreitet. Im vorliegenden Beitrag werden einige begunstigende Faktoren und Produkte vorgestellt sowie Folgen fur die Wirtschaft herausgearbeitet. Dabei wird die Zinssenkungspolitik der US-Notenbank ebenso diskutiert wie kursierende Schuldvorwurfe an Manager („Gier“) und an Rating-Agenturen. Abstract Starting from sub-prime real estate financing in the U.S., a financial crisis has developed and spread across the world mainly via structured securities. We describe a number of factors and products which fueled this process and derive economic consequences. The Fed's interest rate policy is as well discussed as are common charges against allegedly greedy managers and rating agencies. JEL Classifications: G01, G21, G24, G28

During the fi nancial crisis the ECB has done its job quite properly. To secure an adequate provision of liquidity its monetary policy framework had not needed to be adjusted in fundamental ways. Interest rate policy was conducted under the infl uence of still sound economic fundamentals and high and rising consumer price infl ation until summer 2008. Thus, the interest rate hike in July was justifi able, although not imperative. Thereafter, the sudden deterioration of the business cycle and the increased strain in the money market forced the ECB to switch over to an expansionary policy stance. At the same time the ECB eased access to central bank liquidity in the face of a dried up money market. Die EZB hat während der Finanzkrise insgesamt die richtigen Entscheidungen getroffen. Das moderne und flexible geldpolitische Instrumentarium musste im Verlauf der Krise nur wenig angepasst werden, um die Banken ausreichend mit Liquidität zu versorgen. Die Zinspolitik stand bis zum Sommer 2008 unter dem Eindruck der hohen und steigenden Inflation der Verbraucherpreise und einer noch soliden realwirtschaftlichen Entwicklung. Die Zinserhöhung im Juli 2008 war daher vertretbar, aber nicht zwingend. Als Reaktion auf die ruckartige Eintrübung der Konjunktur und die Zuspitzung der Finanzmarktkrise im September 2008 schwenkte die EZB zu Recht auf einen deutlich expansiven geldpolitischen Kurs ein. Gleichzeitig erleichterte sie den Zugang zur Refinanzierung angesichts eines weitgehend ausgetrockneten Interbankenhandels.

Die Europäische Zentralbank erhebt seit Mitte 2014 Negativzinsen für Bankeinlagen. Seit Herbst letzten Jahres wird diese Entwicklung von einigen Banken an Privatanleger mit sehr hohen Gesamteinlagen weitergegeben. Hans-Peter Burghof, Universität Hohenheim, sieht in einem »Minuszins« einen »unmöglichen Zins«, der die Erwartungen der Sparer enttäuscht. Für Max Otte, Universität Graz, begünstigt das Niedrigzinsumfeld die Entstehung und Vermehrung großer Vermögen und behindert die Vermögensbildung bei breiten Bevölkerungsschichten. Der öffentliche Sektor sei ebenfalls Gewinner dieser Politik. Nach Ansicht von Tobias Tröger, Goethe-Universität Frankfurt am Main, können im Rahmen bestehender Einlageverträge negative Zinsen nicht erhoben werden. Für Ansgar Belke, Universität Duisburg-Essen, handelt es sich bei Negativzinsen um eine Marktverzerrung: Negative Zinssätze lassen Gläubiger für das Privileg der Schuldner zahlen, dass die Kreditnehmer das Geld der Kreditgeber verwenden dürfen – ein Arrangement, das Fundamentalprinzipien der Finanzierungslehre verletzt. Thorsten Polleit, Degussa und Universität Bayreuth, ist der Meinung, dass das Senken des Marktzinses auf 0% oder sogar in den negativen Bereich für eine Politik steht, die unvereinbar ist mit einer freien Marktwirtschaft. Ein negativer realer Marktzins beende den Zinsbezug und nehme damit den Anreiz zu sparen und zu investieren, die Volkswirtschaft verfalle dem Kapitalverzehr. Für Martin Klein, Martin-Luther-Universität Halle-Wittenberg, ist die Erfahrung mit negativen Zinsen bei der EZB und bei Geschäftsbanken bisher noch zu kurzfristig, um ein abschließendes Urteil zuzulassen. Entscheidend für die Zukunft werden, seiner Ansicht nach, vor allem die Auswirkungen der ab dem Frühjahr ins Haus stehenden massiven Liquiditätsausweitung im Rahmen der Geldpolitik der EZB sein. Sie werden das Zinsgefüge weiter nach unten verschieben.

Sowohl in den USA als auch in Großbritannien ist in naher Zukunft mit einer Zinswende zu rechnen. Die Länder des Euroraums sind davon sicher unterschiedlich betroffen. Die Autoren stellen die wichtigsten Transmissionskanäle der internationalen Übertragung der geldpolitischen Impulse dar und quantifizieren die Effekte einer Anhebung der Zinsen in den USA und in Großbritannien auf die heimische Wirtschaft sowie auf ausgewählte Länder des Euroraums mit Hilfe des RWI-Mehrländermodells. Parallel dazu werden die Auswirkungen einer anhaltenden Abwertung des Euro infolge der jüngsten Lockerung der Geldpolitik durch die EZB ermittelt. While the U.S. and the U.K. are likely to experience an interest rate turnaround in the near future, monetary conditions in the euro area will remain highly accommodative for a long time. The qualitative and quantitative effects of diverging monetary positions between major central banks are expected to have highly heterogeneous effects across the euro area. Thus, the reassessment of international monetary policy transmission mechanism seems relevant and timely. Simulations with the RWI-Multi Country Model quantify the effects of the interest rate hike in the U.S. and in the U.K. on domestic and eurozone economies along with the impact of the depreciation of the euro as a consequence of the recent ECB's quantitative easing move.

While there is ample evidence how central bank communication and interest rate decisions are perceived by financial markets, insights regarding the response of the public is lacking. Media is known to be an important transmitter of news to the public. Based on articles in the Financial Times Europe, we test how expectations on the future course of monetary policy presented in the media are affected by central bank communication and interest rate decisions., KOF Working Papers, 334

Die Geldpolitik der Europäischen Zentralbank steckt in der Klemme. Die konjunkturelle Entwicklung im Euroraum ist so unterschiedlich, dass eine weitere Senkung des einheitlichen Zinses nur wenigen Ländern gerecht werden würde. Der Beitrag diskutiert, ob die EZB im Rahmen ihrer Kommunikationspolitik weiteren Spielraum hat, um die konjunkturelle Entwicklung im Euroraum insgesamt trotz der bestehenden Nullzinsgrenze zusätzlich zu stabilisieren. Der Fokus liegt dabei auf der sogenannten »Forward Guidance«, einer besonderen Form der Erwartungssteuerung, die Aussagen des geldpolitischen Entscheidungsgremiums hinsichtlich der erwarteten Dauer seiner derzeitigen Niedrigzinspolitik enthält.

This paper asks why modern finance theory and the efficient market hypothesis have failed to explain long-term carry trades; persistent asset bubbles or zero lower bounds; and financial crises. It extends Keen (Solving the Paradox of Monetary Profits, 2010) and the Theory of the Monetary Circuit to give a mathematical representation of Minsky's Financial Instability Hypothesis. In the extended model, the central bank rate is not neutral and the path is non-ergodic. The extended circuit has survival constraints that include a living wage, a zero interest rate and an upper interest rate. Inflation is everywhere. The possibility of a high interest rate, hedge economy emerges, where powerful banks invest surplus loan interest. With speculation, banks lobby to enter investment markets and the system is precariously liquid/illiquid. The paradox of a Ponzi economy, where loans never get repaid, is that private banks must speculate to increase reserves and rely on systemic crises to rebuild their balance sheets. Estimating model parameters for the US gives a scissor-graph like the The Financial Crisis Inquiry Commission (The Financial Crisis Inquiry Report, 2011) with other nuances, namely i) a 'heart attack' in 1973-1974 that corresponds to the collapse of Bretton Woods ii) an accelerated decoupling of household wages and loans after the repeal of Glass-Steagall. Simulating bank bailouts, household bailouts and a Keynesian boost suggests that bank bailouts are the least effective intervention, with downward pressure on wages and household spending. Bailing out hedge households is a form of monetary contraction, and boosting hedge business loans is a form of monetary expansion. The appropriate policy choice would seem to depend on the external balance and inflation concerns. The paper concludes that, with international Ponzi sectors, viable resolution mechanisms include reparations (dL < 0), turning Ponzi debt into equity or 'junk' debt (dL → ∞), household bailouts and a Keynesian boost.

This paper explicitly models strategic interaction between two independent national fiscal authorities and a single central bank in a simple New Keynesian model of a monetary union. Monetary policy is constrained by the zero lower bound on nominal interest rates. Coordination of fiscal policies does not always lead to the best welfare effects. It depends on the nature of the shocks whether governments prefer to coordinate or not coordinate. The size of the government multipliers depend on the combination of the intraunion competitiveness parameters. They get larger in case of implementation lags of fiscal policy.

Die Leitzinsen der Zentralbanken sind ein bedeutendes Politikinstrument. Weil jedoch Zentralbänker und nicht Regierungen die Leitzinsen bestimmen, haben Politiker einen Anreiz, Zentralbänker derart zu beeinflussen, dass die Zinssätze nach dem Belieben der Politik verändert werden. Niklas Potrafke untersuchte zusammen mit Ansgar Belke, Universität Duisburg-Essen, für 23 OECD-Länder über den Zeitraum 1980 bis 2005, wie Regierungsideologie die Nominalzinssätze beeinflusst hat.

Mit dem Krisenmanagement in der Eurozone soll unter anderem verhindert werden, dass die Regierungen zu hohe Zinsen auf Staatsanleihen zahlen müssen. Diesem Ziel dient das umstrittene Bondaufkaufprogramm OMT der Europäischen Zentralbank (EZB). Seit Auflage der ersten Hilfsprogramme 2010 wird immer wieder behauptet, dass ein Zinsniveau von über sechs Prozent für Länder wie Spanien und Italien noch erträglich sei. Der Marktdruck sei sogar gesund, weil er wichtige Reformen anstoße und dafür sorge, dass Staatsdefizite abgebaut würden. Diese vermeintlichen Vorteile müssen gegen vier gefährliche Folgen hoher Zinsen auf Staatsanleihen abgewogen werden. Erstens erhöhen sie auch die Finanzierungskosten von Banken. Die dadurch bedingte Kapitalverknappung schadet, zweitens, der Realwirtschaft. Drittens wirken geldpolitische Maßnahmen bei solch hohen Zinsen von Land zu Land sehr unterschiedlich und fördern Divergenzen. Viertens können erhöhte Zinsen kurzfristig überzogene Sparmaßnahmen provozieren, die sowohl die Konjunktur wie die Steuereinnahmen beeinträchtigen. Aufgrund dieser Zusammenhänge und da hohe Zinsen einen Vertrauensverlust der Märkte reflektieren, ist eine Stabilisierung der Risikoprämien Voraussetzung für die Erholung der Eurozone. Dazu müssen auch die Regierungen beitragen. (Autorenreferat)

From 2000 to 2003, when Ben Bernanke was a professor and then a Fed Governor, he wrote extensively about monetary policy at the zero bound on interest rates. He advocated aggressive stimulus policies, such as a money-financed tax cut and an inflation target of 3-4%. Yet, since U.S. interest rates hit zero in 2008, the Fed under Chairman Bernanke has taken more cautious actions. This paper asks when and why Bernanke changed his mind about zero-bound policy. The answer, at one level, is that he was influenced by analysis from the Fed staff that was presented at the FOMC meeting of June 2003. This answer raises another question: why did the staff's views influence Bernanke so strongly? I seek answers to this question in the social psychology literature on group decision-making.

Die bisherigen Ansätze zur Lösung der Finanz- und Wirtschaftskrise setzen alle bei dem Realteil der Wirtschaft an. Jede Transaktion besteht jedoch aus Leistung und Gegenleistung. Reiner Peter Hellbrück, Universität Hohenheim, sucht nach den Bestimmungsgründen von Leistungsbilanzsalden bei der Finanzierung und zeigt, dass durch eine regionale Zinspolitik ein geldpolitischer Hebel vorhanden ist, der geeignet erscheint, die Leistungsbilanzströme umzukehren.

Die Europäische Zentralbank hat im Zuge der Finanzkrise und der sich verschlechternden realwirtschaftlichen Entwicklung im Euroraum die Leitzinsen auf ein historisches Allzeittief gesenkt. Welche Risiken birgt die Niedrigzinspolitik? Nach Ansicht von Michael Schubert, Commerzbank AG, Frankfurt am Main, können mit dem Niedrigzins die Ursachen der Krise, die ausufernden Staatsdefizite und die strukturellen Probleme in den Peripherieländern, nicht bekämpft werden. Er helfe allenfalls, bestimmte Symptome zu dämpfen. Sebastian Watzka, Ludwig-Maximilians-Universität München, sieht derzeit keine besonders große Gefahr für den deutschen Finanzmarkt und die Realwirtschaft von dem exzessiv niedrigen Zinsniveau ausgehen. Im Gegenteil, die derzeitige Finanzmarktlage, bei drohender Gefahr einer Rezession für den Euroraum, sei geprägt von der Suche nach der vermeintlich sicheren Anleihe. Trotzdem müsse genau beobachtet werden, wie sich Vermögenswerte und Risikoaufnahme in Zukunft entwickeln werden. Für Jörg Hinze und Leon Leschus, Hamburgisches WeltWirtschaftsInstitut, sind Befürchtungen, die expansive Geld- und Fiskalpolitik könnten zu Inflation führen, angesichts der rezessiven Rückschläge in vielen Ländern im Moment nicht gerechtfertigt. In der Eurozone werde vielmehr über Deflationsrisiken und die Notwendigkeit von neuen Wachstumsprogrammen bzw. stimulierenden Maßnahmen diskutiert. Für Gunther Schnabl, Universität Leipzig, ist die geldpolitische Krisentherapie von heute die Ursache für die Krise von morgen. Immer neue, immer größere Liquiditätsspritzen werden nötig, da die Folgen des graduellen Absenkens des Weltzinsniveaus nicht auf die Finanzmärkte beschränkt bleiben, sondern ein Anreiz für steigende Staatsverschuldung, mit nachhaltigen Rückwirkungseffekten auf die Geldpolitik entsteht.

This paper asks why modern finance theory and the efficient market hypothesis have failed to explain long-term carry trades; persistent asset bubbles or zero lower bounds; and financial crises. It extends Keen (Solving the Paradox of Monetary Profits, 2010) and the Theory of the Monetary Circuit to give a mathematical representation of Minsky's Financial Instability Hypothesis. In the extended model, the central bank rate is not neutral and the path is non-ergodic. The extended circuit has survival constraints that include a living wage, a zero interest rate and an upper interest rate. Inflation is everywhere. The possibility of a high interest rate, hedge economy emerges, where powerful banks invest surplus loan interest. With speculation, banks lobby to enter investment markets and the system is precariously liquid/illiquid. The paradox of a Ponzi economy, where loans never get repaid, is that private banks must speculate to increase reserves and rely on systemic crises to rebuild their balance sheets. Estimating model parameters for the US gives a scissor-graph like the The Financial Crisis Inquiry Commission (The Financial Crisis Inquiry Report, 2011) with other nuances, namely i) a heart attack in 1973-1974 that corresponds to the collapse of Bretton Woods ii) an accelerated decoupling of household wages and loans after the repeal of Glass-Steagall. Simulating bank bailouts, household bailouts and a Keynesian boost suggests that bank bailouts are the least effective intervention, with downward pressure on wages and household spending. Bailing out hedge households is a form of monetary contraction, and boosting hedge business loans is a form of monetary expansion. The appropriate policy choice would seem to depend on the external balance and inflation concerns. The paper concludes that, with international Ponzi sectors, viable resolution mechanisms include reparations (dL < 0), turning Ponzi debt into equity or junk debt (dL → ∞), household bailouts and a Keynesian boost.

A view advanced in the aftermath of the late-2000s financial crisis is that lower than optimal interest rates lead to excessive risk taking by financial intermediaries. We evaluate this view in a quantitative dynamic model in which interest rate policy affects risk taking by changing the amount of safe bonds that intermediaries use as collateral in the repo market. In this model with properly-priced collateral, lower than optimal interest rates reduce risk taking. We also consider the possibility that intermediaries can augment their collateral by issuing assets whose risk is underestimated by credit rating agencies, as was observed prior to the crisis. In the presence of such mispriced collateral, lower than optimal interest rates contribute to excessive risk taking and amplify the severity of recessions., La crise financière de la fin des années 2000 en a amené plusieurs à soutenir que des taux d’intérêt inférieurs au taux optimal encouragent la prise de risques excessifs par les intermédiaires financiers. Pour déterminer ce qu’il en est, les auteurs recourent à un modèle dynamique quantitatif dans lequel la politique de taux d’intérêt influe sur la prise de risque en modifiant le volume des obligations sûres que les intermédiaires utilisent en garantie d’emprunts sur le marché des pensions. Lorsque les garanties sont évaluées correctement, le maintien de taux d’intérêt inférieurs au taux optimal réduit la prise de risque. Les auteurs examinent aussi la possibilité que les intermédiaires augmentent leur volume de garanties en émettant des actifs dont le risque est sous-estimé par les agences de notation, comme ce fut le cas avant la crise. En présence de garanties mal évaluées, de tels taux d’intérêt contribuent à la prise de risques excessifs et amplifient la gravité des récessions.

Aus Sicht der bonitätsschwachen Länder des Euroraums ist die Forderung nach Eurobonds verständlich. Denn die damit verbundene nominale Zinskonvergenz hätte den Effekt, dass die Zinsen der unsolideren Länder merklich sinken. Im Gegenzug müsste Deutschland, würde es in Zukunft Eurobonds statt z.B. Bundesanleihen begeben, mit deutlich höheren Zinskosten als bisher rechnen. Das ifo Ins­titut rät angesichts der zu erwartenden Mehrkosten von der Einführung von Eurobonds ab.

Using a version of the Smets-Wouters model of the US economy augmented to include both New Keynesian and New Classical sectors, this paper investigates the performance of inflation targeting and price-level targeting when the zero lower bound on nominal interest rates is occasionally-binding. Several notable results emerge. First, the unconditional probability of hitting the lower bound is lower under price-level targeting than inflation targeting, with 'lower bound episodes' being less frequent and lasting for shorter periods of time. Second, the volatilities of key macroeconomic variables are lower under price-level targeting than inflation targeting. Third, the lower frequency and severity of lower bound episodes under price-level targeting appears to have a first-order impact on consumption, investment and output, raising their mean values. Intuitively, price-level targeting performs well because inflation expectations act as automatic stabilisers, reducing the chance of hitting or remaining at the lower bound whilst also providing stability when the economy is away from the lower bound.

This paper examines which macroeconomic and financial variables are most informative for the federal funds target rate decisions made by the Federal Open Market Committee (FOMC) from a forecasting perspective. The analysis is conducted for the FOMC decision during the period January 1990 - June 2008, using dynamic ordered probit models with a Bayesian endogenous variable selection methodology and real-time data for a set of 33 candidate predictor variables. We find that indicators of economic activity and forward-looking term structure variables as well as survey measures have most predictive ability. For the full sample period, in-sample probability forecasts achieve a hitrate of 90 percent. Based on out-of-sample forecasts for the period January 2001 - June 2008, 82 percent of the FOMC decisions are predicted correctly.

How should monetary policy respond to changes in financial conditions? In this paper we consider a simple model where firms are subject to idiosyncratic shocks which may force them to default on their debt. Firms’ assets and liabilities are denominated in nominal terms and predetermined when shocks occur. Monetary policy can therefore affect the real value of funds used to finance production. Furthermore, policy affects the loan and deposit rates. In our model, allowing for short-term inflation volatility in response to exogenous shocks can be optimal; the optimal response to adverse financial shocks is to lower interest rates, if not at the zero bound, and to engineer a short period of controlled inflation; the Taylor rule may implement allocations that have opposite cyclical properties to the optimal ones. JEL Classification: E20, E44, E52

The recent financial crisis deeply affected the money market yield curve and thus, potentially, the proper functioning of the interest rate channel of monetary policy transmission. Therefore, we analyze the effectiveness of monetary policy in steering euro area money market rates using two measures: first, the predictability of money market rates on the basis of monetary policy expectations, and second the impact of extraordinary central bank measures on money market rates. We find that market expectations about monetary policy are less relevant for money market rates up to 12 months after August 2007 compared to the pre-crisis period. At the same time, our results indicate that the ECB’s net increase in outstanding open market operations as of October 2008 accounts for at least a 100 basis point decline in Euribor rates. These findings show that central banks have effective tools at hand to conduct monetary policy in times of crises.

This paper aims at discovering the decision rule the Governing Council of the ECB uses to set interest rates. We construct a Taylor rule for each member of the council and for the euro area as a whole, and aggregate the interest rates they produce using several classes of decision-making mechanisms: chairman dominance, bargaining, consensus, voting, and voting with a chairman. We test alternative scenarios in which individual members of the council pursue either a national or a federal objective. We then compare the interest-rate path predicted by each scenario with the observed euro area's interest rate. We find that scenarios in which all members of the Governing Council are assumed to pursue Euro-area-wide objectives are dominated by scenarios in which decisions are made collectively by a council consisting of members pursuing national objectives. The best-performing scenario is the one in which individual members of the Governing Council follow national objectives, bargain over the interest rate, and their weights are based on their country's share of the zone's GDP.

The paper analyzes the sustainability of governmental debt and its welfare properties in an overlapping generations economy with stochastic production and capital accumulation. In the absence of taxation, equilibria with positive debt generically converge to debtless eauilibria are typically inefficient. It is shown that this may be overcome by a tax on labor income which stabilizes the level of debt against unfavorable shocks. A long-run welfare criterion is formulated which measures consumer utility at the stabilized equlibrium. Based on this criterion, the welfare effects of different interest policies and alternative stabilization objectives are investigated. The results offer a simple explanation why empirical debt levels are high and typically yield a riskless return despite both fails to be optimal in the long run.

We examine monetary policy options for a small open economy where sovereign default might occur due to intertemporal insolvency. Under interest rate policy and floating exchange rates the equilibrium is indetermined. Under a fixed exchange rate the equilibrium is uniquely determined and independent of sovereign default., Discussion Paper / SFB 823 ; 07/2011

I find that the Eurosystem can stimulate the economy beyond the policy rate by increasing the size of its balance sheet or the monetary base, that is so-called quantitative easing. The transmission mechanism turns out to be different compared to traditional interest rate innovations: (i) whilst the effects on economic activity and consumer prices reach a peak after about one year for an interest rate innovation, this is more than six months later for a shift in the monetary base that is orthogonal to the policy rate (ii) interest rate spreads charged by banks decline persistently after quantitative easing policies, whereas the spreads increase significantly after a fall in the policy rate (iii) there is no significant short-run liquidity effect after an interest rate innovation, that is additional bank loans are generated by a greater credit multiplier. In contrast, the multiplier declines considerably after an expansion of the Eurosystem's balance sheet.

This study deals with the question whether the central banks of Sweden, Denmark and the UK can really influence short-term money markets and thus, would lose this influence in case of Euro adoption. We use a GARCH-M-GED model with daily money market rates. The model reveals the co-movement between the Euribor and the shortterm interest rates in these three countries. A high degree of co-movement might be seen as an argument for a weak impact of the central bank on its money markets. But this argument might only hold for tranquil times. Our approach reveals, in addition, whether there is a specific reaction of the money markets in turbulent times. Our finding is that the policy of the European Central Bank (ECB) has indeed a significant impact on the three money market rates, and there is no specific benefit for these countries to stay outside the Euro area. However, the GARCH-M-GED model further reveals risk divergence and unstable volatilities of risk in the case of adverse monetary shocks to the economy for Sweden and Denmark, compared to the Euro area. We conclude that the danger of adverse monetary developments cannot be addressed by a common monetary policy for these both countries, and this can be seen as an argument to stay outside the Euro area. Der Beitrag befasst sich mit der Frage, ob die Zentralbanken Schwedens, Dänemarks und des Verinigten Königreichs kurzfristig ihre jeweiligen Geldmarktsätze beeinflussen können und folglich bei einer Einführung des Euro anstelle ihrer nationalen Währungen diesen Einfluss verlieren würden. Mit Hilfe eines GARCH-M-GED-Modells mit täglichen Zinsdaten wird dies für den Zeitraum von 1992 bis 2011 überprüft. Als Referenzzins dient hierbei der Euribor. Die Ergebnisse zeigen eine gleichgerichtete Entwicklung zwischen dem Euribor und den nationalen Drei-Monats-Geldmarktsätzen in den untersuchten Ländern an. Diese gleichgerichtete Bewegung kann in dem Sinne interpretiert werden, dass die jeweiligen Zentralbanken nur einen geringen Einfluss auf die Entwicklung der Geldmarktzinsen in ihren Ländern haben. Es ist nicht auszuschließen, dass dieses Argument jedoch nur für 'ruhige Zeiten' an den Finanzmärkten gilt. Deshalb liegt ein Augenmerk der Untersuchung auf Zeiten mit beträchtlichen Turbulenzen in den Märkten. Die Ergebnisse zeigen, dass die Politik der Europäischen Zentralbank (EZB) einen beträchtlichen Einfluss auf die Entwicklung der drei Geldmarktsätze ausübt. Zusätzlich zeigen die Ergebnisse des GARCH-M-GED Modells eine im Vergleich zum Euroraum unterschiedliche Risikoentwicklung und instabile Volatilitäten des Risikos, wenn Schweden und Dänemark negativen monetären Schocks gegenüberstehen. Der Beitrag endet mit der Schlussfolgerung, dass sich diese beide Staaten gegenüber negativen monetären Schocks nicht durch eine gemeinsame Geldpolitik schützen können und es somit aus Sicht der skandinavischen Länder rational sein kann, der Eurozone nicht beizutreten.

This paper provides a detailed survey of the economic literature comparing inflation and price-level targeting as macroeconomic stabilisation policies. Its contributions relative to past surveys are as follows. First, rather than focusing on any particular topic, the survey gives equal emphasis to all key areas of the literature. Second, the paper discusses 'new results' in several areas, including the zero lower bound on nominal interest rates; the long-term impact of price-level targeting; and financial market considerations. Finally, the survey is written in such a way that it can be understood by economists with little or no prior knowledge of price-level targeting and the related academic literature. The survey concludes that whilst price-level targeting has a number of potential advantages, further research is needed to accurately quantify its costs and benefits and to test robustness. Potential obstacles to the introduction of price-level targeting in practice include: concerns about its credibility; lack of public understanding; and lack of prior experience with price-level targeting regimes.

This paper investigates why financial market experts misperceive the interest rate policy of the European Central Bank (ECB). Assuming a Taylor-rule-type reaction function of the ECB, we use qualitative survey data on expectations about the future interest rate, inflation, and output to discover the sources of in- dividual interest rate forecast errors. Based on a panel random coefficient model, we show that financial experts have systematically misperceived the ECB's in- terest rate rule. However, although experts tend to overestimate the impact of inflation on future interest rates, perceptions of monetary policy have become more accurate since clarification of the ECB's monetary policy strategy in May 2003\. We find that this improved communication has reduced disagreement over the ECB's response to expected inflation during the financial crisis.

We quantify the fiscal multipliers in response to the American Recovery and Reinvestment Act (ARRA) of 2009. We extend the benchmark Smets-Wouters (Smets and Wouters, 2007) New Keynesian model, allowing for credit-constrained households, the zero lower bound, government capital and distortionary taxation. The posterior yields modestly positive short-run multipliers around 0.52 and modestly negative long-run multipliers around -0.42. The multiplier is sensitive to the fraction of transfers given to credit-constrained households, the duration of the zero lower bound and the capital. The stimulus results in negative welfare effects for unconstrained agents. The constrained agents gain, if they discount the future substantially.

We present a simple macroeconomic model with open market operations that allows examining the effects of quantitative and credit easing. The central bank controls the policy rate, i.e. the price of money in open market operations, as well as the amount and the type of assets that are accepted as collateral for money. When the policy rate is sufficiently low, this set-up gives rise to an (il-)liquidity premium on non-eligible assets. Then, a quantitative easing policy, which increases the size of the central bank's balance sheet, can increase real activity and prices, while a credit easing policy, which changes the composition of the balance sheet, can lower interest rate spreads, stimulate real activity, and reduce prices. The effectiveness of quantitative and credit easing is however limited to the extent that eligible assets are scarce. Nevertheless, they can help escaping from the zero lower bound.

I propose a discrete choice method for estimating monetary policy reaction functions based on research by Hu and Phillips (2004). This method distinguishes between determining the underlying desired rate which drives policy rate changes and actually implementing interest rate changes. The method is applied to ECB rate setting between 1999 and 2010 by estimating a forward-looking Taylor rule on a monthly basis using real-time data drawn from the Survey of Professional Forecasters. All parameters are estimated significantly and with the expected sign. Including the period of financial turmoil in the sample delivers a less aggressive policy rule as the ECB was constrained by the lower bound on nominal interest rates. The ECB's non-standard measures helped to circumvent that constraint on monetary policy, however. For the pre-turmoil sample, the discrete choice model's estimated desired policy rate is more aggressive and less gradual than least squares estimates of the same rule specification. This is explained by the fact that the discrete choice model takes account of the fact that central banks change interest rates by discrete amounts. An advantage of using discrete choice models is that probabilities are attached to the different outcomes of every interest rate setting meeting. These probabilities correlate fairly well with the probabilities derived from surveys among commercial bank economists.

We argue that it is not necessary for the central bank to react to the exchange rate to have a desirable outcome in the economy. Indeed, when the Taylor rule includes contemporane-ous data on the variables in the rule, the central bank can disregard from the exchange rate as long as there is enough with interest rate inertia in monetary policy. The reason is that interest rate inertia and a reaction to the current nominal exchange rate change are perfect substitutes in monetary policy. Hence, we give a rationale for the central bank to focus on the interest rate change rather than the interest rate level to have a desirable outcome in the economy, which we define as a determinate rational expectation equilibrium that is stable under least squares learning.

This paper investigates to what extent Chinese monetary policy is constrained by the dollar peg. To this end, we use a cointegration framework to examine whether Chinese interest rates are driven by the Fed's policy. In a second step, we estimate a monetary model for China, in which we include also other monetary policy tools besides the central bank interest rate, namely reserve requirement ratios and open market operations. Our results suggest China has been relatively successful in isolating its monetary policy from the US policy and that the interest rate tool has not been effectively made use of. We therefore conclude that by employing capital controls and relying on other instruments than the interest rate China has been able to exert relatively autonomous monetary policy.

This paper examines the effectiveness of monetary aggregates through various nominal interest rates by integrating the financial sector into the Cash-in-Advance (CIA) economy. The model assumes that there are two types of representative agents in the financial sector, which are: productive banks and financial intermediates. The productive banks supply a financial service, which is an exchange technology service to households and financial intermediates receive savings fund from savers and offer loans to borrowers. The monetary expansions are increased banking costs through the rate of inflation. It leads households to use more exchange credit relative to cash at the goods market. Since the number of savings funds is equal to the number of exchange credits used at the goods market, money injections are lower the nominal interest rate on saving as the saving fund increases with exchange credit. By assuming that firms are the only borrowers at the capital market from Fuerst (1992), a lower nominal interest rate on the saving fund reduces the marginal cost of labour and increases labour demand. Meanwhile, the increasing marginal cost of money through the expected inflation effect has a negative effect on labour supply. With labour demand dominating labour supply effects, both output and employment increase with monetary expansion. The paper is able to generate a decreasing nominal interest rate with an increasing money supply with an absence of limited participation monetary shocks from Lucas (1990); and by allowing firms to borrow wage bills payment from financial intermediates, it examines the positive response of aggregate output subject to monetary expansion under flexible price framework.

Die letzte Leitzinserhohung der Europaischen Zentralbank (EZB) birgt ein Risiko: Noch nie war das Inflationsdifferential in der Eurozone zum Zeitpunkt einer Zinserhohung so hoch wie heute. In einem solchen Umfeld kann die Zinspolitik kontraproduktiv wirken. Der Beitrag erlautert Konsequenzen und Losungsvorschlage, wie das makrookonomische Umfeld fur die EZB-Zinspolitik verbessert werden kann.

The relation between the ECB’s main refinancing (MRO) rates and the money market is key for the monetary transmission process in the euro area. This paper investigates how money market rates respond to the new information revealed by MRO auctions. Our results confirm a stabilizing level relationship between the overnight rate Eonia and MRO rates before the financial crisis. Since the start of the financial crisis, however, we find that MRO auction outcomes even exacerbated the disconnection of money market rates from the policy-intended interest rate level. These findings support the fixed rate full allotment policy introduced by the ECB as an unconventionalmeasure to re-stabilize banks’ refinancing conditions.

In this paper, we study the influence of central bank transparency and informal central bank communication on the money market adjustment process between two interest rate decisions. The sample covers nine major central banks for the period from January 1999 to July 2007. We find, first, that both transparency and communication facilitate understanding upcoming interest rate decisions. Second, transparency, as measured by various subcategories of the Eijffinger and Geraats (2006) index, leads to better anticipation of monetary policy. Provision of information on (unanticipated) macroeconomic disturbances and explicit prioritization of central bank objectives are the most important of these subcategories. Finally, there is no unique optimal design for central banks as (i) a very high degree of transparency, (ii) frequent communication on an informal basis, (iii) gradualism in target rate changes, or (iv) a high frequency of interest rate decisions all contribute to sound understanding regarding future interest rate decisions.

We apply the asymmetric ARDL model advanced by Shin, Yu and Greenwood-Nimmo (2009) to the analysis of the patterns of pass-through from policy-controlled interest rates to a variety of longer-term rates in the U.S. and Germany. Our results reveal three main phenomena. Firstly, while the e®ect of a rate hike is largely con¯ned to the short-run, the e®ect of a rate cut is muted in the short-run but non-negligible at longer horizons. We characterise this pattern as a switch from short-run positive asymmetry to long-run negative asymmetry, a pattern that potentially reconciles the con°icting empirical evidence and theoretical conjectures that dominate the existing literature. Secondly, our results con¯rm that there has been a decoupling of long-term rates from policy-controlled rates during the period of the Great Moderation in both the U.S. and Germany, albeit in a complex and nonlinear way. Thirdly, by replicating Taylor's (2007) counterfactual exercise using our asymmetric models, we ¯nd that Taylor over-estimates the importance of policy-controlled rates for the broader economy. Equivalently, our results do not support Greenspan's belief that the decoupling is a recent phenomenon. In light of our findings, we conclude that a narrow focus on the interest rate as the sole instrument of monetary policy is likely to be sub-optimal under current institutional arrangements.

Dieser Artikel zeigt, dass eine Subvention der heimischen Kreditzinsen zu einem Rückgang der Auslandsverschuldung führen kann. Ausgehend von der Mittelwert-Varianz- und der Erwartungsnutzentheorie wurde ein Modell entwickelt, in dessen Rahmen der Wirtschaftsakteur sein internationales Kreditportfolio optimiert. Eine Einbeziehung der Zinsparitätenbedingung war in der Analyse jedoch nicht zielführend. In den Modellrahmen wird eine staatliche Zinssubvention eingeführt und ihre theoretische Wirkung auf die Fremdwährungsverschuldung der Haushalte untersucht.