Financial Crisis and Quantitative Easing: Can Broad Money Tell Us Anything?*

Cobham, David; Kang, Yue

doi:10.1111/j.1467-9957.2012.02323.x

Cited by 16 publications

(15 citation statements)

References 18 publications

(17 reference statements)

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“…Turning to other recent papers that have also adopted a flow-of-funds perspective, Cobham and Kang (2012) make use of a simplified flow-of-funds matrix to trace the effects of quantitative easing and a range of financial shocks on broad money and the flow of funds. Carpenter et al (2012) analyse the beneficiaries of the asset purchases by the Federal Reserve by sector in the US flow-of-funds accounts.…”

Section: The 'Paradox Of Deleveraging' and The Role Of Central Banks mentioning

confidence: 99%

The ECB's non-standard monetary policy measures: the role of institutional factors and financial structure

Cour-Thimann¹,

Winkler²

2012

Oxford Review of Economic Policy

157

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may ABSTRACTThis paper aims to make two contributions: to review the ECB's non-standard monetary policy measures in response to the financial and sovereign debt crisis against the background of the institutional framework and financial structure of the euro area; and to interpret this response from a flow-of-funds perspective. The paper highlights how the rationale behind the ECB's nonstandard measures differs from that underlying quantitative easing policies. As a complement to rather than a substitute for standard interest rate decisions, the non-standard measures are aimed at supporting the effective transmission of monetary policy to the economy rather than at delivering additional direct monetary stimulus. The flow-of-funds analysis proposes an interpretation of central banks' crisis responses as fulfilling their traditional role as lender of last resort to the banking system and, more broadly, reflecting their capacity to act as the "ultimate sector" that can take on leverage when other sectors are under pressure to deleverage. It also provides examples that trace the impact of non-standard measures across different sectors and markets. Keywords:Monetary policy, asset purchases, financial structure, economic and monetary union, sovereign debt crisis, flow of funds JEL: E02, E40, E50, E582 NON-TECHNICAL SUMMARYThe institutional set-up of Economic and Monetary Union (EMU) and the financial structure of the euro area economy -where financing is mostly bank-based rather than market-based -both frame the ECB's monetary policy. It is particularly important to recognise this specific backdrop when making comparisons of the ECB's response to the crisis with that of other central banks.The existence of a single currency in a multi-country area can be seen to create disincentives for individual governments to properly tackle fiscal and structural policies as well as to safeguard financial stability. The crisis has shown that the original institutional set-up of EMU only partially corrected for such disincentives. Excessive debt and leverage had built up prior to the crisis, in private and public, financial and non-financial sectors, with imbalances emerging across the euro area and elsewhere.The global financial and economic crisis has put the spotlight on central banks using their balance sheets as backstops to the financial system. Against this background the paper reviews the ECB's specific non-standard monetary policy ...

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Section: The 'Paradox Of Deleveraging' and The Role Of Central Banks mentioning

confidence: 99%

The ECB's non-standard monetary policy measures: the role of institutional factors and financial structure

Cour-Thimann¹,

Winkler²

2012

Oxford Review of Economic Policy

157

View full text Add to dashboard Cite

show abstract

“…An article in the BoE's Quarterly Bulletin (Joyce et al, 2011) reported a number of estimates of the peak effect of QE on real GDP and CPI inflation taken from ongoing research at the Bank, with a range for GDP of 1.5-2%, and for CPI inflation of 0.75-1.5%. Another investigation which focused more directly on broad money and its relation to nominal GDP found a somewhat larger impact (Cobham and Kang, 2012b). On the other hand, a recent survey by Martin and Milas (2012) argues that much of the effects on long-term interest rates were only temporary, and that later QE programmes in the UK and the US were less effective than the first ones.…”

Section: Policy In the Early Years Of The Crisismentioning

confidence: 98%

“…32 See Bridges and Thomas (2012) and Cobham and Kang (2012b) on the 'offsets' to QE which tended to reduce monetary growth.…”

Section: Notesmentioning

confidence: 99%

Monetary policy under the Labour government: the first 13 years of the MPC

Cobham¹

2013

Oxford Review of Economic Policy

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“…This multivariate three-factor Markovswitching system is applied to study how permanent and transitory changes in the quantity of 1 See Chauvet and Lu (2013) and Belongia and Ireland (2012a), and references therein for new theoretical models. 2 Recent empirical related papers are, for example, Cobham and Kang (2012) and Reynard (2012). Cobham and Kang (2012) examine the implications of QE for broad money using flow of funds and find a major role for money during the recent financial crisis, and during the implementation of QE.…”

Section: Introductionmentioning

confidence: 99%

“…2 Recent empirical related papers are, for example, Cobham and Kang (2012) and Reynard (2012). Cobham and Kang (2012) examine the implications of QE for broad money using flow of funds and find a major role for money during the recent financial crisis, and during the implementation of QE. Reynard (2012) finds a stable equilibrium relationship between money and prices across countries.…”

Section: Introductionmentioning

confidence: 99%

Nonlinear Relationship Between Permanent and Transitory Components of Monetary Aggregates and the Economy

2013

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This paper uses several methods to study the interrelationship among Divisia monetary aggregates, prices, and income, allowing for nonstationary, nonlinearities, asymmetries, and time-varying relationships among the series. We propose a multivariate regime switching unobserved components model to obtain transitory and permanent components for each series, allowing for potential recurrent and structural changes in their dynamics. Each component follows distinct two-state Markov processes representing low or high phases. Since the lead-lag relationship between the phases can vary over time, rather than preimposing a structure to their linkages, the proposed flexible framework enables us to study their specific lead-lag relationship over each one of their cycles and over each U.S. recession in the last 40 years. The decomposition of the series into permanent and transitory components reveals striking results. First, we find a strong nonlinear association between the components of money and prices -all low phases of the transitory component of prices were preceded by tight transitory and permanent money phases. We also find that most recessions were preceded by tight money phases (its cyclical and permanent components) and high transitory price phases (with the exception of the 2001 and 2009-2010 recessions). In addition, all recessions were associated with a decrease in transitory and permanent income.

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Financial Crisis and Quantitative Easing: Can Broad Money Tell Us Anything?*

Cited by 16 publications

References 18 publications

The ECB's non-standard monetary policy measures: the role of institutional factors and financial structure

The ECB's non-standard monetary policy measures: the role of institutional factors and financial structure

Monetary policy under the Labour government: the first 13 years of the MPC

Nonlinear Relationship Between Permanent and Transitory Components of Monetary Aggregates and the Economy

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