Zero Lower Bound And Monetary Policy In The Euro Area

Author : Lars Protze
Publisher : Diplomica Verlag
ISBN 13 : 3836664909
Total Pages : 185 pages
Book Rating : 4.05/5 ( download)

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Download or read book Zero Lower Bound and Monetary Policy in the Euro Area written by Lars Protze and published by Diplomica Verlag. This book was released on 2008-08 with total page 185 pages. Available in PDF, EPUB and Kindle. Book excerpt: Central banks around the world try to influence economic activity by altering nominal interest rates which will have an effect on the real rate. However, this is only possible as long as interest rates are above zero. The case of Japan showed that monetary policy was helpless as nominal rates approached zero. This Book starts with an overview of monetary policy with the restriction that interest rates can not fall below zero. Then optimal monetary policy in a low inflation environment is treated. This is done by using a New Keynesian model with sticky prices. Therefore the model and the necessary optimality conditions will be derived (this will be done extensively in the appendix). After deriving the optimality conditions it will be shown how optimal monetary policy will be conducted. To evaluate the outcome of monetary policy a welfare function will be derived. It will be shown how the welfare function to evaluate the outcome of monetary policy is derived from the utility function of the household. As a result it will be shown that a price level target is welfare maximizing although most central banks nowadays use an inflation target instead. Reasons for an inflation target will be shown in the discussion of the model. The second part of the book describes the inflation dynamics in the euro area to see what monetary authority shall do to prevent the economy from falling into the vicious circle of deflation. Two wage contracting models that describe inflation dynamics in the euro area reasonably well will be explained, the Fuhrer-Moore und the Taylor contracting. After showing the optimal policy it will be discussed how severe the zero bound in the euro area is and what policy alternatives are left when monetary policy is restricted. Finally the results obtained will be discussed to see the pitfalls of price level targeting. The large appendix provides the complete derivation of the model and the optimality conditions.

Author : Lars Protze
Publisher : diplom.de
ISBN 13 : 3836612240
Total Pages : 184 pages
Book Rating : 4.41/5 ( download)

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Download or read book Zero Lower Bound - Is it a problem in the Euro Area? written by Lars Protze and published by diplom.de. This book was released on 2008-04-17 with total page 184 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inhaltsangabe:Abstract: The case of Japan showed that the zero bound is a problem for the conduct of monetary policy that even nowadays has to be considered. For several years Japan experienced deflation and a short rate very close to zero leaving monetary policy almost helpless to boost economic activity. The same fears came up in America and Europe as economic performance deteriorated and nominal interest rates were lowered rapidly to stimulate the economy. However, lowering the interest rate to stimulate the economy is only possible when interest rates are above zero. In this paper it shall be explored how optimal monetary policy is conducted with the constraint that interest rates cannot fall below zero and how large the risk to hit the bound is in the euro area. The first part is done in a New Keynesian model with sticky prices but flexible wages the second in an estimated model of the euro area. The outline of the paper is as follows. In the next chapter an overview of the work on the zero bound and monetary policy is presented. Thereafter the New Keynesian model as it was presented by Eggertson and Woodford will be used to determine optimal policy. It will be shown that quantitative easing, as it was done by the Bank of Japan, is not an appropriate tool in the model surrounding to escape a deflation spiral and what should be done instead. It will be shown that credible commitment is able to overcome most of the distortions induced by the zero bound. The central bank should commit itself to a target for the price level instead of a target for the rate of inflation. The optimal solution involves credible commitment to cause subsequent inflation when deflation vanishes. This management of expectation will help to escape a deflation spiral faster and causes lower welfare losses. After treating the phenomenon in a model surrounding it shall be explored what the chances are to slide into that vicious circle if monetary policy follows a Taylor rule and how likely the zero bound is under different wage contracting specifications. This will be done in a small estimated euro area economy model. It shall also be considered how the announcement of a positive inflation target well above zero may help to avoid the zero bound. This was done by the European Central Bank that changed its target from an inflation rate between zero and two to a rate below, but close to, two percent. Finally the results will be discussed focussing on the assumptions [...]

Author : Andreas Jobst
Publisher : International Monetary Fund
ISBN 13 : 1475524471
Total Pages : 48 pages
Book Rating : 4.75/5 ( download)

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Download or read book Negative Interest Rate Policy (NIRP) written by Andreas Jobst and published by International Monetary Fund. This book was released on 2016-08-10 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: More than two years ago the European Central Bank (ECB) adopted a negative interest rate policy (NIRP) to achieve its price stability objective. Negative interest rates have so far supported easier financial conditions and contributed to a modest expansion in credit, demonstrating that the zero lower bound is less binding than previously thought. However, interest rate cuts also weigh on bank profitability. Substantial rate cuts may at some point outweigh the benefits from higher asset values and stronger aggregate demand. Further monetary accommodation may need to rely more on credit easing and an expansion of the ECB’s balance sheet rather than substantial additional reductions in the policy rate.

Author : International Monetary Fund. Research Dept.
Publisher : International Monetary Fund
ISBN 13 : 1484397487
Total Pages : 216 pages
Book Rating : 4.80/5 ( download)

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Download or read book World Economic Outlook, April 2019 written by International Monetary Fund. Research Dept. and published by International Monetary Fund. This book was released on 2019-04-09 with total page 216 pages. Available in PDF, EPUB and Kindle. Book excerpt: After strong growth in 2017 and early 2018, global economic activity slowed notably in the second half of last year, reflecting a confluence of factors affecting major economies. China’s growth declined following a combination of needed regulatory tightening to rein in shadow banking and an increase in trade tensions with the United States. The euro area economy lost more momentum than expected as consumer and business confidence weakened and car production in Germany was disrupted by the introduction of new emission standards; investment dropped in Italy as sovereign spreads widened; and external demand, especially from emerging Asia, softened. Elsewhere, natural disasters hurt activity in Japan. Trade tensions increasingly took a toll on business confidence and, so, financial market sentiment worsened, with financial conditions tightening for vulnerable emerging markets in the spring of 2018 and then in advanced economies later in the year, weighing on global demand. Conditions have eased in 2019 as the US Federal Reserve signaled a more accommodative monetary policy stance and markets became more optimistic about a US–China trade deal, but they remain slightly more restrictive than in the fall.

Author : Athanasios Orphanides
Publisher :
ISBN 13 : 9789279649110
Total Pages : 37 pages
Book Rating : 4.16/5 ( download)

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Download or read book The Fiscal-monetary Policy Mix in the Euro Area written by Athanasios Orphanides and published by . This book was released on 2017 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper explores the reasons for the suboptimal fiscal-monetary policy mix in the euro area in the aftermath of the global financial crisis and ways in which the status quo can be improved. A comparison of fiscal and monetary policies and of economic outcomes in the euro area and the United States suggests that both fiscal and monetary policy in the euro area have been overly tight. Fiscal policy has been hampered by the institutional framework which constrains individual states and lacks instruments to secure an appropriate aggregate stance. ECB monetary policy has been hampered by the distributional effects of balance sheet policies which needed to be adopted at the zero lower bound, and by discretionary decisions taken before the crisis such as the reliance on credit rating agencies for determining collateral eligibility for monetary operations. The compromising of the "safe asset" status of euro area sovereign debt during the crisis complicated fiscal and monetary policy. Changes in the discretionary decisions governing the implementation of monetary policy in the euro area can potentially reduce the distributional effects of policy and improve the fiscal-policy mix and longerterm prospects for the euro area.

Author : Paul Mercier
Publisher : Oxford University Press
ISBN 13 : 0199557527
Total Pages : 404 pages
Book Rating : 4.23/5 ( download)

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Download or read book The Concrete Euro written by Paul Mercier and published by Oxford University Press. This book was released on 2011-01-27 with total page 404 pages. Available in PDF, EPUB and Kindle. Book excerpt: Written by leading officials at the European Central Bank, this volume examines the theoretical and historical underpinnings of the euro area's framework for monetary policy implementation.

Author : Günter Coenen
Publisher :
ISBN 13 :
Total Pages : 25 pages
Book Rating : 4.85/5 ( download)

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Download or read book Zero Lower Bound written by Günter Coenen and published by . This book was released on 2003 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Author : International Monetary Fund
Publisher : International Monetary Fund
ISBN 13 : 9928445397
Total Pages : 344 pages
Book Rating : 4.91/5 ( download)

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Download or read book Negative Euro Area Interest Rates and Spillovers on Western Balkan Central Bank Policies and Instruments written by International Monetary Fund and published by International Monetary Fund. This book was released on 2017-05-04 with total page 344 pages. Available in PDF, EPUB and Kindle. Book excerpt: Proceedings of a conference co-hosted by the Bank of Albania and the International Monetary Fund in May 2017.

Author : Karen Cabos
Publisher :
ISBN 13 :
Total Pages : 7 pages
Book Rating : 4.51/5 ( download)

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Download or read book Monetary Policy at the Zero Lower Bound written by Karen Cabos and published by . This book was released on 2015 with total page 7 pages. Available in PDF, EPUB and Kindle. Book excerpt: Both interest rates and inflation rates in the Euro area have reached levels dangerously close to zero. By the strategy of quantitative easing the ECB has been providing ample liquidity - yet without lasting success. Several asymmetries in policy transmission and monetary policy making have been acknowledged when interest rates hit the zero bound. This paper starts with a short review of these asymmetries. Afterwards it turns to the issues of credibility and commitment. It is argued that the inflation forecasts of the ECB are central for the communication strategy. In the current situation they should signal the willingness to stick to low interest rates. Yet the ECB is shown to be rather more optimistic than other forecasters when the prevailing threats of deflation are concerned.

Author : International Monetary Fund. European Dept.
Publisher : International Monetary Fund
ISBN 13 : 1513540912
Total Pages : 112 pages
Book Rating : 4.17/5 ( download)

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Download or read book Euro Area Policies written by International Monetary Fund. European Dept. and published by International Monetary Fund. This book was released on 2015-07-27 with total page 112 pages. Available in PDF, EPUB and Kindle. Book excerpt: This Selected Issues paper discusses the risks of low growth and inflation over the medium term for the euro area. It examines the consequences of longer term trends that predate the crisis and the progress made in addressing the crisis legacies of high unemployment and debt. The paper illustrates, in a downside scenario, how low potential growth and crisis legacies leave the euro area vulnerable to the risks of stagnation. The weak medium-term prospect and limited policy space leave the euro area vulnerable to shocks that could lead to a prolonged period of low growth and inflation. Model simulations suggest that a modest shock to investor confidence could push up risk premia and real interest rates, as policy space is constrained at the zero lower bound and fiscal policy space to provide stimulus is limited. Moreover, the lingering crisis legacies of high debt and unemployment could amplify the original shocks, creating a bad feedback loop and keeping the economy stuck in equilibrium of stagnation.