European Monetary Policy Research Articles

Police patrols, fire alarms, or ambulance chasers? Parliamentary oversight of European monetary policy and banking supervision

The parliamentary oversight of the European Central Bank (ECB) is frequently criticised for its lack of focus in both monetary policy and banking supervision. While Members of the European Parliament (MEPs) can publicly question ECB decisions in these fields, they often use committee hearings for other purposes, such as expressing political positions on issues that may or may not be related to ECB activities. This article aims to conceptualise such variation by expanding the seminal distinction between ‘police patrols’ and ‘fire alarms’ to include two novel categories – ‘planning bureaus’ and ‘ambulance chasers’. To illustrate the applicability of our typology, the article provides the first systematic comparison of the Monetary and the Banking Dialogues (2014–2021), combining a qualitative content analysis of 1,504 parliamentary questions with insights from interviews with MEPs. The findings highlight the pervasiveness of fire alarms and ambulance chasing in the parliamentary practice of overseeing the ECB.

Friend, Not Foe - Energy Prices and European Monetary Policy

Friend, Not Foe - Energy Prices and European Monetary Policy

Aufweichen, abbremsen, abschirmen – Wirtschaftsmetaphern zwischen politischer Abgrenzung und diskursiven Allgemeinplätzen

Abstract This study examines the use of metaphors in the German debate on European monetary and fiscal policy. Though the debates in this policy area garnered considerable interest among linguists, so far there is a gap concerning interdisciplinary comparative studies that examine metaphorical expressions in regard to their divergent political use. This study addresses said gap by posing two explorative research questions: Which metaphors shape the German political debate on European monetary and fiscal policy? And is there a relationship between the use of metaphors and the political perspective of the people using them? To examine these questions, we developed an innovative methodological triangulation that combines qualitative, hermeneutic metaphorical analyses with quantitative, data-driven approaches of corpus linguistics. By analyzing the communication of eleven political actors during three debates on Eurozone policy, we identify the most salient metaphors and compare their political usage. Our results show four types of metaphorical expressions which can be distinguished by their relative openness regarding political perspective and their respective referent. Thereby, this study firstly provides an important guide to understanding the debate at hand; secondly, sharpens the theoretical underpinnings of the comprehension of political metaphors as a whole; and thirdly, is a valuable contribution to the methodical study of metaphorical expressions in the field of applied linguistics.

Financial markets and price increases in Europe after the russian-Ukrainian War

The research relevance is predefined by the fact that the European financial market has suffered a direct negative impact due to the russian aggression and violation of the territorial integrity of Ukraine. All these processes are accompanied by several previously formed and unfavourable trends for socio-economic and financial development, which have become even more severe due to the hostilities. In particular, COVID-19, environmental degradation, rising inflation, deglobalization, insufficient social development of individual countries, as well as fuel and food shortages. The research aims to conclude a comparative analysis of financial policy in European countries and individual countries of the Balkan Peninsula, as well as substantiation of the financial risk management features and the formation of a forecast model of economic stabilization. To achieve the set objectives, scientific methods were used, including analysis method, analogy method, and modelling method. The article analyses expert reports and the results of scientific research on the current state of the financial market and monetary policy in Europe as a result of the russian-Ukrainian war, in particular in the Balkans and Kosovo. The analogy of the directions of financial policy in the period before the russian invasion of the territory of Ukraine with the period of direct aggression of the russian federation is conducted. The fundamental reasons for changes in pricing policy, in particular pricing mechanisms, are characterized. The determining factors of financial risks, tools for assessing the consequences, as well as generalization of management methods for their reduction and elimination in the future are substantiated. The directions of European financial support aimed at the defence sector and socio-economic needs are considered. The practical value of the work is that the conceptual model of strategic development of the European financial market in the context of stabilization processes of international financial policy, as well as food and energy security was formed

Monetary policy transmission in China: dual shocks with dual bond markets

AbstractAlthough China’s monetary and financial system differs drastically from its Western counterpart, empirical studies covering this vast economy have often been simple reestimations or recalibrations of models originally designed to describe US or European monetary policy. In this paper, we aim to assess Chinese monetary policy and, in particular, monetary policy transmission through yield curves into the real economy. Our study takes into account the peculiarities of the Chinese economy: Namely, our model includes both China’s modern attempts at a market-based monetary policy as well as the “authority-based” one that is a relic of the original banking system. Besides, it considers the special nature of the Chinese treasury bond market, which is separated into two independent ones with very limited direct arbitrage opportunities between almost identical assets. Finally, it incorporates the role of real estate, which played an essential role in China during the last decade. Our results show that different monetary policy shocks cause asymmetric effects on macroeconomic and financial variables.

Considerations on the Legacy of Ordoliberalism in European Monetary Policy

The paper aims to analysis the ordoliberal legacy in European Monetary Policy between 1998 and 2020. What emerges is that although ordoliberal principles were incorporated into the guiding values of the European treaties, they did not play a key role in guiding either the monetary policy strategies fixed in 1998 and 2003 or the ECB interventions implemented between 2011 and 2020 in response to the Great Recession and the sovereign debt crisis. This is basically due to a) the ECB's acceptance of the New Consensus Macroeconomics (NCM) that recognises the endogenous nature of money and its partial non-neutrality, b) the ECB's constant tendency to act discretionally in order to reach different goals.

TARGET balances in the euro area: the case of Germany

ABSTRACT Applying a BVAR model, the present paper first identifies the possible drivers of Germany’s TARGET claims. In this context, in terms of potential causes, a distinction is made between a rise in the global risk assessment, tensions within the euro area, and European monetary policy. It becomes evident that the TARGET flows between 2015 and 2017 can be ascribed in large part to monetary policy and to a minor extent to the risk assessment within the euro area. At the peak of the European debt crisis between 2010 and mid-2012, the TARGET flows were affected by uncertainty in the euro area as a dominant factor, although global factors also played a key role according to the model. The BVAR model we use opens up the possibility of studying the causes of current fluctuations in Germany’s TARGET claims.

On the Interest Rate Sensitivity of Aggregate Investment in the Euro Zone

The purpose of this paper is to estimate the response of aggregate investment to interest rate changes in the Euro zone. Keynesian macroeconomic theory assumes that there is an inverse relationship between investment and interest rates, but empirical evidence is inconclusive. Interestingly, there are no studies relating macroeconomic investment to central bank rates in the Euro zone, despite the importance of this question for European monetary policy. To check whether the inverse interest rate – investment nexus holds for the Euro zone we conducted a comprehensive econometric study. In particular, we estimated a modified accelerator model that related aggregate investment in levels and the investment-to GDP (gross domestic product) ratio to income, interest rates and a set of control variables. The model was estimated by OLS (ordinary least squares) and simultaneous-equations methods such as TSLS (two-stage least squares) and GMM (generalized method of moments). The study was unable to uncover a significant interest rate effect on investment in the Euro zone. Thus, there is little support for the expansionary monetary policy of the European Central Bank.

One size may not fit all: Financial fragmentation and European monetary policies

AbstractThis article investigates the impact of European Central Bank policies on credits considering financial and banking fragmentation. Using European data from the past decade, we estimate SVAR models to analyze the regional impact of conventional and unconventional measures on price and volume indicators of fragmentation. The risk‐taking channel is studied using GVAR models to document the national consequences of this fragmentation. We find that unconventional measures increase credit in peripheral countries. Monetary policies alleviate fragmentation, but mostly in terms of price dispersion rather than credit volume. Finally, unconventional measures imply a rebalancing of European bank assets in favor of foreign currency denominated‐assets.

The War in Ukraine and the European Central Bank

European monetary policymakers face tough choices regarding the inflation and uncertainty fuelled by the war in Ukraine. They need to bring an end to the large-scale asset purchases and negative interest rates that have been the bulwarks of monetary-policy accommodation since 2015. They must also ensure that European monetary policy can be applied across countries while holding down the differences in sovereign borrowing costs between those governments that are financially strong, such as Germany, and those that are in a weaker position, such as Italy. Any solution to the problem of widening borrowing costs that is consistent with fighting inflation will impose losses on the central banks of stronger countries, while making it cheaper for those governments that receive support to borrow. Whatever it decides, the European Central Banks’s Governing Council does not have to be political to be perceived by the European public as making a political choice.

Europäische Geldpolitik – Auf dem Weg zur Modernen Monetaristischen Theorie

Abstract We show that actual Eurosystem’s monetary policy of purchasing government bonds of the countries of the Eurozone corresponds to the concept of Modern Monetary Theory. Here the state creates and skims off the required money supply for its expenditures himself. The economic policy challenges emerging from the expanded monetary basis in the Eurozone as consequence of the government bond purchases are substantial. We stress that European monetary policy should therefore immediately address the task of reducing the monetary basis and at the same time limiting possible adjustment costs for the European economies. This should take place within an institutionalized monetary management framework.

COVID-19, Economic Policies and Public Debt Sustainability in Italy

We analyze the conditions for public debt-to-GDP ratio stability extending the Domar’s approach by including the interaction between the government’s reaction function and the private sector’s reaction function, and considering the impact of 2020–2021 pandemic shock and the monetary and fiscal policy responses, with simulations applied to the Italian case. The outcomes of the numerical simulations show the crucial importance of ECB extraordinary monetary policies, of the NGEU and, to lesser extent, of national expansionary fiscal policies adopted during pandemic shock; both European wide monetary and fiscal policies actually increase the sustainability area avoiding the high risk of sovereign debt crisis in Italy (and other peripheral Eurozone countries). The stabilizing effect of GDP growth, hopefully resulting from the NGEU policy, is also simulated in the paper.

The European Monetary Policy Responses During the Pandemic Crisis

This paper uses an event-based analysis to describe how the European Central Bank’s (ECB’s) policy responses to the pandemic crisis have affected the European financial and economic system. The result of our exercise, which is based on the examination of the main measures taken by the ECB during 2020, is that these responses have positively affected the European economic system by improving banks’ lending activity and by indirectly creating room for expansionary fiscal policies in the euro area’s high-debt countries that do not have fiscal capacity.

European monetary policy: Between market neutrality and climate change

Climate change has also become a relevant topic in the financial sector. According to a survey of 33 central banks, 70 percent describe climate change as a major threat to financial market stability. Thus, if climate change threatens the stability of the financial markets and worries central banks, the next question is what role does climate change play in the current monetary policy of the eurozone and other currency areas? This article will address this question, drawing on speeches by the European Central Bank (ECB) Governing Council. The article analyses the speeches of the ECB Governing Council with a view to establishing how the ECB’s top management handle climate change and what kinds of institutional change result from the new green policy. The paper will show that in recent years, the issue of climate change has increasingly moved from a marginal position towards the centre of the ECB Executive Board’s agenda. Gradually, the growing awareness of the problem has resulted in institutional change: Climate change was initially seen as a risk factor for the financial markets – it is now considered a threat to price stability itself. Redefining the relationship between climate change and the ECB’s primary task has created new scope for action. Now, it is not only a matter of the ECB gathering knowledge on climate change and integrating that into its own calculations and models, but also of it pursuing an active monetary policy in the fight against climate change. In this context, the concept of market neutrality has been abandoned and replaced by the more interventionist principle of market efficiency.

Judgment of the German Federal Constitutional Court (2 BvR 859/15) on the Public Sector Purchase Programme of the ECB: An Interdisciplinary Analysis

On 5 May 2020, the Federal Constitutional Court of Germany announced in a momentous ruling that the Public Sector Purchase Programme (PSPP) of the European Central Bank (ECB) exceeds European Union (EU) competences. This decision initiated a lively debate in law and economics all over Europe. This article provides a unique interdisciplinary reading of the ruling in order to clarify the line of argument. Considering a cross-disciplinary view enlightens the understanding of the historic judgment. Ultra-Vires, European Court of Justice, German Federal Constitutional Court, Public Sector Purchase Programme, European Central Bank, Monetary vs. Economic Policy, Economic and Monetary Union

What Drives the German Target Balances? Evidence from a Bvar Approach

Applying a BVAR model, the present paper first identifies the possible drivers of Germany's TARGET claims. In this context, in terms of potential causes, a distinction is made between a rise in the global risk assessment, tensions within the euro area, and European monetary policy. It becomes evident that the TARGET flows between 2015 and 2017 can be ascribed in large part to monetary policy and to a minor extent to the risk assessment within the euro area. At the peak of the European debt crisis between 2010 and mid-2012, the TARGET flows were affected by uncertainty in the euro area as a dominant factor, although global factors also played a key role according to the model. The BVAR model we use opens up the possibility of studying the causes of current fluctuations in Germany's TARGET claims.

Possible scenarios for European monetary policy in 2021

The article analyzes the proposed directions (scenarios) of fi ne-tuning of monetary policy of the European Union and the likely consequences of global pandemic volatility. The article also points to the need to continue to reform the European monetary policy, particularly considering the role of the euro in the modern system of international fi nance, the EU debt problems and competition with the U.S. dollar. The widespread prevalence of COVID-19 and the related periods of self-isolation and lockdowns have exacerbated monetary and fi nancial problems even in the world’s leading countries such as the European Union. The solution of monetary problems in its multi-level structure is entrusted to the European Central Bank, which acts as a regional (and at the same time supranational) regulator of the monetary and fi nancial sphere at the system level. The pursued unconventional monetary policy, aimed at getting out of the prolonged recession and defl ation, is facing new challenges, including those of a global nature. Therefore, it is necessary to analyze the current situation and identify the real reasons that prevent the achievement of these goals. The author comes to conclusion that they can be classifi ed into external and internal causes, exogenous and endogenous, fundamental and force majeure. However, the coronavirus formally related to the latter, as it seems in view of the onset of the second wave and the projected third, can, to a certain extent, be considered a hybrid one, beginning to exert a comprehensive infl uence, aff ecting all spheres of human activity and certainly monetary and fi nancial sphere as well. Exchange rates are becoming more volatile, and traditional measures to regulate them are no longer eff ective. Consequently, the need to fi nd new approaches to monetary policy, especially for the European Union, with its becoming permanent debt problems, capital under-regulation and unfi nished regional currency digitalization, is becoming increasingly evident.

Better Off Without the Euro? A Structural VAR Assessment of European Monetary Policy

Modern OCA theory has developed different conclusions on when forming a currency union is beneficial. An important pragmatic question in this context is: Did delegating monetary policy to the ECB increase stress in the individual euro area countries? An SVAR analysis reveals that monetary stress has declined more in the euro area than in the euro areas’ doppelganger. The synthetic doppelganger is composed of other OECD countries. This result is independent of the identification strategy (sign restrictions/heteroskedasticity/Cholesky). The results can be rationalized by more formalized central banking and the euro becoming a dominant currency.

20 Years of European Monetary Policy. From Doctrinarism to Realpolitik

20 Years of European Monetary Policy. From Doctrinarism to Realpolitik

Koordynacja polityki fiskalnej i monetarnej w strefie euro przed kryzysem i po kryzysie

Znaczenie koordynacji polityki fiskalnej i monetarnej istotnie wzrosło po kryzysie z końca pierwszej dekady XXI w. Osiągnięcie skoordynowanych działań, zarówno w aspekcie koordynacji narodowych polityk fiskalnych, jak i w zakresie fiskalno-monetarnym, miał wspomóc szereg wprowadzonych reform od 2011 r. Celem niniejszego artykułu jest analiza koordynacji polityk fiskalnych państw członkowskich strefy euro oraz ich zagregowanego nastawienia z polityką pieniężną Europejskiego Banku Centralnego w dwóch okresach badawczych rozdzielonych najważniejszymi reformami. Analiza obejmuje lata 1999–2018. Ten przedział czasowy został podzielony na dwa podokresy: 1999–2010 i 2011–2018. Do analizy koordynacji nastawienia fiskalnego krajów strefy euro posłużono się indeksem restrykcyjności fiskalnej (FCI) i współczynnikiem korelacji. Zagregowane nastawienie polityk fiskalnych oraz polityki monetarnej, oszacowane za pomocą indeksu warunków pieniężnych (MCI), przedstawiono na mapie restrykcyjności (policy mix). Ponadto oszacowano związek indeksu policy mix (PMI) z luką produktową. Koordynacja narodowych polityk fiskalnych okazała się silniejsza w drugim analizowanym okresie. Niemniej jednak analiza koordynacji fiskalno-monetarnej nie pozwala na wyciągnięcie jednoznacznych wniosków. Policy mix w pierwszym analizowanym okresie miała charakter antycykliczny, natomiast w drugim – procykliczny. Wciąż istnieje pilna potrzeba dalszej poprawy zarządzania gospodarczego w strefie euro.