The European Central Bank has found itself caught in the crossfire of a battle raging between the world’s leading macroeconomists.
The Bank for International Settlements’ call last month for the world’s central bankers to hurry up and raise interest rates has reignited the debate over how to explain – and tackle – the financial and economic turmoil that has persisted over the past six years. Read more
The European Central Bank has revealed the details of arguably the most important element of the package of extraordinary monetary policy measures it unveiled last month to rid the eurozone of the threat of deflation.
On Thursday, the ECB announced exactly how its targeted longer-term refinancing operation, or the TLTRO, will work. Earlier forward guidance that rates were likely to remain on hold until the end of 2016 was watered down by Mario Draghi, ECB president, possibly in the hope that this would raise the take-up of the TLTRO funds.
Mr Draghi also revealed that banks would be able to borrow up to €1trn from the central bank, should they smash targets, or benchmarks, set by the ECB. Lenders are already able to borrow an initial amount of $400bn in two auctions, scheduled for September and December. The €400bn figure corresponds to 7 per cent of their lending books to businesses and households, excluding mortgage loans. Read more
Last month, students from four continents joined forces to call for reform of the economics curriculum.
In an open letter, the students said they wanted their courses to delve into a wider range of economics theories and methodologies than the standard neo-classical model that dominates undergraduate teaching, and to learn more about the implications of policy-making.
Speaking to those students was a heartening experience – all of them struck me as extremely thoughtful and articulate. Their desire for reform seemed driven by a curiosity about the world and what economics could do to improve it.
I suspect they’ll be encouraged by comments made in a speech today by the similarly thoughtful and articulate Benoît Cœuré, who sits on the European Central Bank’s executive board. Read more
Throughout its campaign to convince everyone that the eurozone is not about to fall into deflation, the European Central Bank has drawn a distinction between two different sorts of episodes of falling prices.
The first involves a short period during which prices fall. In its monthly bulletin, published on Thursday, the ECB tries to define it, not as deflation, but as “negative annual inflation”. In the ECB’s view, a few months of falling prices will do little long-term damage to the economy. Indeed, the eurozone has already experienced this sort of deflation in the autumn of 2009.
The more dangerous sort of deflation, which the bulletin labels “outright deflation”, can, however, cause lasting pain. If what Mr Draghi has recently dubbed a “pernicious negative spiral”, triggered by ever weaker demand, was to emerge, all hope of the currency bloc’s economy returning to health anytime soon would be shot.
So how can you tell one from the other? Read more
It’s crunch time for the European Central Bank. After more than six months of jawboning, pretty much every seasoned ECB watcher thinks the governing council is finally going to ease monetary policy on Thursday.
Disappointing growth, worryingly weak inflation, and the rise of anti-establishment parties in the European Parliamentary elections have only added to the sense that rate-setters must do something to stave off the threat of deflation and help stimulate lending in the real economy. What can we expect from the ECB and how will it work? Read more
Lithuania looks set to become the 19th member of the euro in January 2015 having met all the requirements demanded by the European Commission. Were the Baltic state to join the single currency, as is widely expected, that would trigger a big change in the way the European Central Bank’s governing council votes on monetary policy. Read more
During the ECB’s forum on central banking which is taking place in the Portuguese town of Sintra, president Mario Draghi took the opportunity to discuss his views on how to breath new life into the eurozone’s market for securitisation. Read more
The European Central Bank is not exactly renowned for stoking inflation. At 0.7 per cent, price pressures are now less than half its target of below but close to 2 per cent — something that the governing council has done nothing to correct over the past six months.
That did not stop Paul Krugman today telling the ECB to raise its target even higher. The Princeton professor was standing only meters away from Mario Draghi, in Sintra at an event that the eurozone’s monetary authority hopes to become its own version of the US Federal Reserve’s Jackson Hole.
As hard sells go, this is right up there. Read more
Economics students from 19 countries have united to call for change in the way the subject is taught.
(©Sophie Bédard glorieuxprintemps.wordpress.com)
The students, which include members of the Post-Crash Economics Society at the University of Manchester, are from 42 groups spread across four continents.
Like the Post-Crash Economics Society, the groups are keen for universities to teach a wider range of theories and methodologies than those now on offer at most economics departments.
This from their open letter:
We are dissatisfied with the dramatic narrowing of the curriculum that has taken place over the last couple of decades. This lack of intellectual diversity does not only restrain education and research.
For those who have followed the scrap between Raghuram Rajan, governor of the Reserve Bank of India, and his counterparts at the European Central Bank and the Federal Reserve on the ill-effects of Fed tapering, Benoît Cœuré’s thoughtful speech today is worth a read.
In Mr Rajan’s view, the way the Fed conducts its monetary policy is irresponsible. The US central bank acts merely on the basis of national interest, with scant regard for the ramifications of mass dollar printing in a world where the dollar remains the dominant reserve currency.
These attacks have usually been parried with remarks that central banks such as the Fed (and, given its role as issuer of the only other real reserve currency, the ECB) have little choice but to act within the national interest given the scope of their mandates. From Mr Coeure’s boss Mario Draghi earlier this year:
Draghi: Mr Rajan is really an excellent economist. What one would have to demonstrate to speak of selfishness is the following. One would have to show that monetary policy actions within the United States, the ECB and so on were decided for reasons other than for the sake of the mandate and that, as a result, they were harmful to other countries. As I said, the priority for all of us is compliance with our mandate, which for us is maintaining price stability and for the Federal Reserve Board is the dual mandate.
Mr Cœuré’s speech is interesting as, while he does not go so far as to side with Mr Rajan, he is not so intellectually dishonest as to say that all is fine with the pre-crisis orthodoxy. In short, this said that if everyone just sticks to their inflation targeting mandate and flexible exchange rates everything will be just great. Read more