Exit strategies for monetary policy

Berentsen, Aleksander; Kraenzlin, Sébastien; Müller, Benjamin

doi:10.1016/j.jmoneco.2018.05.002

Cited by 19 publications

(9 citation statements)

References 27 publications

(62 reference statements)

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“…On the other hand, the discovered significant longer run interdependencies between money/credit and house prices during housing booms and during aggressive QE call for the right timing of the exit strategies from QE. The CWT results contribute, therefore, to the recently important issue associated with the plea to abandon the expansionary monetary policy after the Great Recession (see, Berentsen et al, 2018). In other words, the paper complements the strand of the literature which calls for the right timing of the exit strategies from quantitative easing.…”

Section: Discussionmentioning

confidence: 61%

“…On the other hand, however, the discovered significant longer run interdependencies between money/ credit and house prices during housing booms in all of the sample countries and during aggressive QE call for the right timing of the exit strategies from QE. The CWT results contribute, therefore, to the recently important issue associated with abandoning the expansionary monetary policy after the Great Recession (see, Berentsen, Kraenzlin, & Müller, 2018).…”

Section: Since the Great Moderation Until 2016mentioning

confidence: 93%

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Money, Credit, House Prices and Quantitative Easing – The Wavelet Perspective From 1970 to 2016

Ryczkowski

2019

Journal of Business Economics and Management

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This paper investigates the relationship between money/credit growth and house price inflation for a sample of twelve developed countries. The novel application of the continuous wavelet transform showed significant but time-varying linkages between these two variables. During quantitative easing in the United States and the United Kingdom, growth of respectively broad money and bank credit was leading house price inflation for the 2-8 years cycle. In contrast to this, the Bank of Japan and the European Central Bank either did not assign a separate role to house prices in their reaction functions or the two central banks were not capable to significantly increase house prices by extending money/credit during the business cycle. The significant co-movements of financial variables and house prices around booming episodes warn us that a new asset price boom might appear within the length of a business cycle as a consequence of overly expansionary monetary policy. In the euro area, the significant, long run, and close to a one-for-one link between growth of M3 and house price inflation is an argument for the monetary pillar of the European Central Bank. The present study contributes significantly to the literature by introducing a novel application of a continuous wavelet transform to study the housing prices in relation to money, credit and quantitative easing. The article uses a long-term dataset covering a period of almost half a century to analyse their varying relationship in the short-run to the long-run and from the historical perspective.

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Section: Discussionmentioning

confidence: 61%

Section: Since the Great Moderation Until 2016mentioning

confidence: 93%

Money, Credit, House Prices and Quantitative Easing – The Wavelet Perspective From 1970 to 2016

Ryczkowski

2019

Journal of Business Economics and Management

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“…Thus, VAR models may be a tempting alternative (Chung-ki Min, 2019). Finally, VAR models seem to be especially useful, as we expect the unconventional stimulus to be withdrawn in line with the largely discussed 'exit strategies' (Aleksander Berentsen, Sébastien Kraenzlin, and Benjamin Müller, 2018;Yi Wen, 2014). Therefore, for example, a vector error correction model does not seem to be an appropriate choice, as it introduces concepts related to the long-run and stable relationship (cointegration).…”

Section: Methodsmentioning

confidence: 98%

Macroeconomic effects of unconventional balance sheet policies in the United States and The Euro area

Ryczkowski

2020

Panoeconomicus

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Post Great Recession vector autoregression analysis revealed that the reserves' creation of the European Central Bank (ECB) until 2015 had an impact on the perceived credit risk that was either statistically insignificant or opposite to the expected one. The ECB's unconventional measures returned the real GDP growth merely to an equilibrium of nil growth. In the United States, unconventional balance sheet policies of the Federal Reserve System (the Fed) significantly increased the real GDP by between 3.2% and 5.3% and reduced the initial rise of the perceived credit risk. We argue that the plausible reason for the discrepancy between the Fed and the ECB's outcomes were the contrasting goals of both central banks. The major conclusion is that creation of money by the central bank may support the economy after a crisis, but it cannot deliver long-run prosperity. The positive effects of balance sheet policies were found to be short-lasting.

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“…Due to the quasi-linear preference structure, production and consumption of general goods are irrelevant for aggregate welfare. First-best allocations however require that the marginal return from an investment project equals the marginal 9 The theoretical model presented in Section 3 shares elements of Berentsen et al (2014) and Berentsen et al (2018). Our theoretical framework allows for a more realistic modeling of the effects of NIR on the economy.…”

Section: Preferences Of Banks Are Given By the Flow Utility Functionmentioning

confidence: 99%

On the Negatives of Negative Interest Rates and the Positives of Exemption Thresholds

2020

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Major central banks remunerate reserves at negative interest rates and it is increasingly likely that they will keep rates negative for many more years. To study the long run implications of negative rates, we construct a dynamic general equilibrium model with commercial banks funding investment projects and a central bank issuing reserves. Negative rates distort investment decisions resulting in lower output and welfare. These findings sharply contrast the short-run expansionary effects ascribed to negative rate policies by most of the existing literature. Negative rates also reduce commercial bank profitability. Exempting a fraction of reserves from negative rates can resolve profitability concerns without affecting the central bank's ability to control the money market rate. However, exemption thresholds do no mitigate the investment distortions created by negative rates.

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Exit strategies for monetary policy

Cited by 19 publications

References 27 publications

Money, Credit, House Prices and Quantitative Easing – The Wavelet Perspective From 1970 to 2016

Money, Credit, House Prices and Quantitative Easing – The Wavelet Perspective From 1970 to 2016

Macroeconomic effects of unconventional balance sheet policies in the United States and The Euro area

On the Negatives of Negative Interest Rates and the Positives of Exemption Thresholds

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