Search

We estimate the effects of interest rate forward guidance (FG) using a parsimonious VAR, augmented with survey forecast data. The identification strategy of FG shocks via sign and zero restrictions is successfully tested by the recovery of true IRFs from simulated data. The identified shocks from the VAR suggest that FG has a stronger effect on macro variables and deviations are more instantaneous compared to the hump-shaped response following unanticipated changes in monetary policy. We apply this evidence to calibrate free parameters of an otherwise estimated DSGE model in order to dampen the FG Puzzle.

Od svetovne finančne krize leta 2008 so centralne banke po vsem svetu izvajale številne nekonvencionalne denarne politike, da bi preprečile kreditni krč, spodbudile skupno povpraševanje in povečale inflacijo. V evroobmočju so to vključevale zagotavljanje likvidnosti s ponudbami za popolno dodelitev fiksne obrestne mere, podaljševanje ročnosti kreditnih poslov centralne banke, širši nabor upravičenih zavarovanj, obsežni programi nakupa sredstev javnega in zasebnega sektorja, negativne obresti stopnje in smernice za naprej. Večja gospodarstva kot so Združene države Amerike, Evropska Unija, Japonska, Združeno Kraljestvo, so posredovale s podobnimi vendar različnimi ukrepi, ki so imeli različne učinke na njihovo gospodarsko rast, inflacijo in zaposlenost. Since the global financial crises of 2008, central banks around the world have implemented unconventional monetary policies to counteract credit crunches, support demand-driven inflation. In the euro area, they include the provision of liquidity through the offer of full fixed rate lending solely, the extension of central bank lending, a wider range of eligible collateral, large-scale private sector procurement programs, negative downward interest. Larger economies such as the United States, the European Union, Japan, and the United Kingdom are therefore intervening in similarly but different measures, which they thus had to do on their economic growth, inflation and employment.

Through the euro area crisis, financial fragmentation across jurisdictions became a prime concern for the single monetary policy. The ECB broadened the scope of its instruments and enacted a series of non-standard measures to engineer an appropriate degree of policy accommodation. The transmission of these measures through the currency union remained highly dependent on the financial structure and conditions prevailing in various regions. This paper explores the country-specific macroeconomic transmission of selected non-standard measures from the ECB using a global DSGE model with a rich financial sector: we extend the six-region multi-country model of Darracq Pariès et al. (2016), introducing credit and exchange rate channels for central bank asset purchases. The portfolio rebalancing frictions are calibrated to match the sovereign yield and exchange rate responses after ECB's Asset Purchase Programme (APP) first announcement. The domestic transmission of the APP through the credit intermediation chain is significant and quite heterogenous across the largest euro area countries. The introduction of global portfolio frictions on euro area government bond holdings by international investors opens up for a larger depreciation of the euro. The interaction between international and domestic channels affect the magnitude and the cross-country distribution of the APP impact.

The 20th anniversary of Economic and Monetary Union (EMU) offers an opportunity to look back on the ECB's record and learn lessons that can improve the conduct of policy in the future. This paper charts the way the ECB has defined, interpreted and applied its monetary policy framework - its strategy - over the years from its inception, in search of evidence and lessons that can inform those reflections. Our "Tale of Two Decades" is largely a tale of "two regimes": one - stretching slightly beyond the ECB's mid-point - marked by decent growth in real incomes and a distribution of shocks to inflation almost universally to the upside; and the second - starting well into the post-Lehman period - characterised by endemic instability and crisis, with the distribution of shocks eventually switching from inflationary to continuously disinflationary. We show how the most defining element of the ECB's monetary policy framework, its characteristic definition of price stability with a hard 2% ceiling, functioned as a key shock-absorber in the relatively high-inflation years prior to the crisis, but offered a softer defence in the face of the disinflationary forces that hit the euro area in its aftermath. The imperative to halt persistent disinflation in the post-crisis era therefore called for a radical, unprecedented policy response, comprising negative policy rates, enhanced forms of forward guidance, a large asset purchase programme and targeted long-term loans to banks. We study the multidimensional interactions among these four instruments and quantify their impact on inflation and economic activity.

On 1 June 2018 the ECB celebrated its 20th anniversary. This paper provides a comprehensive view of the ECB's monetary policy over these two decades. The first section provides a chronological account of the macroeconomic and monetary policy developments in the euro area since the adoption of the euro in 1999, going through four cyclical phases "conditioning" ECB monetary policy. We describe the monetary policy decisions from the ECB's perspective and against the background of its evolving monetary policy strategy and framework. We also highlight a number of the key critical issues that were the subject of debate. The second section contains a partial assessment. We first analyze the achievement of the price stability mandate and developments in the ECB's credibility. Next, we investigate the ECB's interest rate decisions through the lens of a simple empirical interest rate reaction function. This is appropriate until the ECB hits the zero-lower bound in 2013. Finally, we present the ECB's framework for thinking about non-standard monetary policy measures and review the evidence on their effectiveness. One of the main themes of the paper is how ECB monetary policy responded to the challenges posed by the European twin crises and the subsequent slow economic recovery, making use of its relatively wide range of instruments, defining new ones where necessary and developing the strategic underpinnings of its policy framework.

This paper investigates the interrelations between monetary, macro- and microprudential policies. It first provides an overview of the three policies, starting with their main instruments and objectives. Monetary policy aims at maintaining price stability and promoting balanced economic growth, macroprudential policies aim at safeguarding the stability of the overall financial system, while microprudential policies contribute to the safety and soundness of individual entities. Subsequently, the paper provides a simplified description of their respective transmission mechanisms and analyses the interactions between them. A conceptual framework is first presented on the basis of which the analysis of the interactions across the different policies can be demonstrated in a stylised manner. These stylised descriptions are then further complemented by model-based simulations illustrating the significant complementarities and interactions between them. Finally, the paper concludes that from a conceptual point of view there are numerous areas of interaction between the policies. These create scope for synergies, which can be reaped by sharing information and expertise across the various policy areas.

This paper presents the role and importance of the European Central Bank (ECB) in the context of measures and effects that are being taken to repair the consequences of the current economic crisis. The ECB, together with the European single currency, the euro, symbolizes long-lasting monetary integration of the EU states. Such form of integration has created the possibility of a supranational action of ECB in the banking sector and financial markets in general. Along with the other most important central banks in the world, the ECB applies various unconventional instruments of monetary policy to stimulate economic growth and development. In this context, the paper explains the nature and mechanism of such measures in order to influence on the insufficient liquidity in the financial markets.

Using novel data on individual euro area banks' balance sheets this paper shows that exposure to stressed European sovereigns manifested in a liquidity shock to their international funding through two channels: (i) a contraction in cross-border funding, and (ii) a contraction in US wholesale funding. The effectiveness of the ECB's unconventional monetary policy measures, in the form of the 3-year Long-Term Refinancing Operations (VLTROs), in mitigating effects of the European sovereign debt crisis on the supply of private sector credit is assessed. Controlling for banks' risk factors and credit demand, the first round of VLTROs in December 2011 is not found to have been successful in offsetting the decline in credit supply to Households and non-financial corporates. In contrast, the VLTROs in February 2012 are found to have mitigated the effect of the European sovereign debt crisis on credit supply. Moreover, a contraction in credit supply to non-financial corporates, but not households, is documented for euro area banks affected by the international liquidity shock and that drew on ECB liquidity under the VLTRO facilities.

This paper explores the relationship between financial conditions and real economic activity in the euro area as a whole and for Greece in particular. We use a financial conditions index (see Angelopoulou et al., 2014) which is constructed using a wide range of prices, quantities, spreads and survey data in line with theory. We update the indices and use them within a VAR framework to estimate the potential impact of the TLTROs on aspects of economic activity. Our results suggest that financial conditions do have a significant effect on economic activity and thus the TLTROs, to the extent that they are designed to improve financial conditions, will provide a boost to the real economy.

Med nestandardne ukrepe spadajo operacije refinanciranja (z zapadlostjo do 6-mesecev), zagotavljanje likvidnosti bankam prek avkcij po fiksni obrestni meri ter podaljšanje likvidnosti v tujih valutah. ECB je nestandardne ukrepe zasnovala tako, da jih je bilo mogoče umakniti, ko se je položaj v evroobmočju normaliziral. The non-standard measures include refinancing operations (with a maturity of up to 6 months), providing liquidity to banks via tenders at a fixed interest rate, and the extension of liquidity in foreign currencies. ECB designed the non-standard measures so that they can be withdrawn, when the situation in the euro area normalised.

The smooth functioning of financial markets came to an end in the second half of 2007, the confidence was evaporated, trading became seriously impaired, short-term money market rates, such as EONIA, and spreads surged significantly. These consequently led to massive imbalances in the financial systems and it caused a threat to the whole liquidity system. For that reason from its initial phase the European Central Bank (ECB) has confirmed its capacity to take bold action to foster financing conditions and enhance its credit support to the euro area economy, while remaining fully aligned with its primary mandate of safeguarding medium-term price stability by introducing the non-standard measures. However it couldn’t protect the whole transmission mechanism as it was reflected by large dispersions of the lending rates to the NFCs throughout the EU countries, mainly separating the northern of the south countries. Such divergence has occurred despite the provision of liquidity to the euro area banking sector. This was reflected mainly in the distressed countries, characterized by low confidence, big uncertainties, large credit risks, harder times in raising funds, weaker capital positions and more risk aversion. In such a manner the crucial point of these divergences was the quality of the borrowers of the EU countries. Going forward, we can say that even if non-standard measures didn’t decrease these divergences they certainly contributed to the survival of small and medium enterprises. Therefore the ECB must act more directly in those distressed countries; it should go to those markets and act in a more proactive way. O bom funcionamento dos mercados financeiros chegou ao fim no segundo semestre de 2007, isto deveu-se sobretudo a falta de confiança, o comércio foi prejudicado, as taxas do mercado monetário, como EONIA, e os spreads apresentaram crescimentos significativos. Contribuindo consequentemente para enormes desequilíbrios nos sistemas financeiros e posteriormente ameaçando todo o sistema de liquidez. Por essa razão, desde a sua fase inicial, o Banco Central Europeu (BCE) tomou a posição de apresentar medidas relevantes para melhorar as condições de financiamento e reforçar a disponibilidade ao crédito para os países da zona euro, mantendo-se totalmente focado a salvaguardar a médio prazo a estabilidade de preços através da introdução das medidas não convencionais. No entanto, não conseguiu o controlo total do mecanismo de transmissão visto que apresenta grandes dispersões entre as taxas de empréstimos às sociedades não financeiras entre os vários países da UE. Tal divergência ocorreu apesar da injeção de liquidez ao setor bancário da zona euro. Isto notou-se nomeadamente no caso dos países mais problemáticos e endividados, caracterizados pela baixa confiança, grandes incertezas e riscos, com posições de capitais mais fracos e mais aversão ao risco. De tal maneira o ponto fundamental dessas divergências foi na qualidade das empresas que emprestam Daqui para frente, podemos dizer que, mesmo se as medidas não convencionais não diminuíram essas divergências, certamente contribuíram para a sobrevivência das pequenas e médias empresas dos países com mais dificuldades. Portanto, o BCE deve atuar mais diretamente nestes países, deve instalar-se nesses mercados e agir de uma forma mais próativa.

The Euro area economic activity and banking sector have shown substantial fragility over the last years with remarkable country heterogeneity. Using detailed data on lending conditions and standards, we analyse how financial fragility has affected the transmission mechanism of the single Euro area monetary policy during the crisis until the end of 2011. The analysis shows that the monetary transmission mechanism has been time-varying and influenced by the financial fragility of the sovereigns, banks, firms and households. The impact of monetary policy on aggregate output is stronger during the financial crisis, especially in countries facing increased sovereign financial distress. This amplification mechanism, moreover, operates mainly through the credit channel, both the bank lending and the non-financial borrower balance-sheet channel. Our results suggest that the bank-lending channel has been partly mitigated by the ECB nonstandard monetary policy interventions. At the same time, when looking at the transmission through banks of different sizes, it seems that, until the end of 2011, the impact of credit frictions of borrowers have not been significantly reduced, especially in distressed countries. Since small banks tend to lend primarily to SME, we infer that the policies adopted until the end of 2011 might have fall short of reducing credit availability problems stemming from deteriorated firm net worth and risk conditions, especially for small firms in countries under stress.

The Euro area economic activity and banking sector have shown substantial fragility over the last years with remarkable country heterogeneity. Using detailed data on lending conditions and standards, we analyse how financial fragility has affected the transmission mechanism of the single Euro area monetary policy during the crisis until the end of 2011. The analysis shows that the monetary transmission mechanism has been time-varying and influenced by the financial fragility of the sovereigns, banks, firms and households. The impact of monetary policy on aggregate output is stronger during the financial crisis, especially in countries facing increased sovereign financial distress. This amplification mechanism, moreover, operates mainly through the credit channel, both the bank lending and the non-financial borrower balance-sheet channel. Our results suggest that the bank-lending channel has been partly mitigated by the ECB nonstandard monetary policy interventions. At the same time, when looking at the transmission through banks of different sizes, it seems that, until the end of 2011, the impact of credit frictions of borrowers have not been significantly reduced, especially in distressed countries. Since small banks tend to lend primarily to SME, we infer that the policies adopted until the end of 2011 might have fall short of reducing credit availability problems stemming from deteriorated firm net worth and risk conditions, especially for small firms in countries under stress.

The aim of this work is to investigate the real impact of monetary policies on market sentiment. This work deals with the analysis of monetary policy of central banks of selected countries and focuses on the actions taken by central banks in the years 2008 to 2012, as a response to the global economic crisis. This work defines the global economic crisis as the financial and debt crisis, whose origin is associated with the collapse of U.S. bank Lehman Brothers in 2008 as a reaction to the collapse of the U.S. real estate market. In the theoretical part is defined monetary policy, monetary policy objectives and monetary instruments used. In the practical part of the thesis describes the monetary measures taken by the Czech National Bank and the European Central Bank, as well as a brief description of the two central banks. In the last part of the thesis is examined the impact of adopted measures on market sentiment.

The thesis deals with non-standard monetary policies of three central banks throughout the global financial crisis. The reason for using non-standard measures was also liquidity trap when monetary policy becomes ineffective. An important milestone was collapse of investment bank Lehman Brothers in September 2008. The central banks carried out some non-standard measures before the collapse such as the emergence of new or expanding existing facilities. However, after the collapse there was panic at the financial and capital markets and market interest rate spreads rose. Central banks were forced to respond to expanding its balance sheet and reducing the monetary policy rate to zero. The main reason for increasing total assets was securities purchases by central banks. The measure, which is expanding the balance sheet is called quantitative easing. In the thesis I try to describe and compare the non-standard measures (with a focus on quantitative easing) taken by the three central banks (Bank of England, the Fed and the ECB) and answer the question whether the measures are effective and whether they can replace the standard monetary policy.