The ECB, Between Conservatism and Pragmatism

The paper examines how the implicit coordination mechanisms between the policymakers could help in overcoming negative macroeconomic consequences which are provoked by the problem of zero lower bound (ZLB) on the nominal interest rates. For the long period of time, before the global recession started, the ZLB problem was not found to be interesting for researchers. Immediately after the crisis outbreak, more attention was put on that problem within different approaches since conventional monetary policy faced substantial limitation in overcoming business cycles. Many authors have proposed new unconventional measures in both monetary policy and fiscal policy sphere. The theoretical approaches to the ZLB problem include many different aspects. In the paper we chose to use regime switching models adjusted to simulate occasionally binding constraints in order to investigate different scenarios within the New Keynesian framework. We found that coordination between more passive monetary policymaker and more active fiscal policymaker is crucial in the ZLB environment. Central bank has to follow monetary policy rule in which both inflation stabilization and output stabilization have certain positive weight. However, credible policy-making which is supported by the relevant institutions is a necessary precondition for implicit coordination, which substantially decrease the losses occurred as a consequence of ZLB on interest rates.

Section: Lessons For Monetary Policy -Expansionary and Innovative Appmentioning

confidence: 99%

“…Economic records from 1970s in the USA and other industrialized countries leading to what is known as "The Great Inflation" period 6. Over the last decades, central banks have made up to 2-percent inflation target credible, securing price stability.…”

mentioning

confidence: 99%

Modeling Macroeconomic Policymakers’ Interactions under Zero Lower Bound Environment: The New Keynesian Theoretical Approach

Prascevic

Ješić

2019

“…However, besides discussing the austerity policies during the crisis, they noted that the economic growth has not been uniform across the EU and besides the catch up of the new member states, some of the old members exhibited low growth rates, considering weak productivity growth and a lack of structural reforms. According to Bastidon et al (2016), the major weaknesses are quasi unchanged in the euro area: first, public debt level and inadequate tax harmonization, and second consideration must be given on how to conciliate a coherent monetary policy and the new banking intermediation frameworks in times of high financial strains. Shehovic (2015) noted that the pre-crisis mechanism for the fiscal policy coordination failed to maintain fiscal discipline, ensure sufficient fiscal space and/or provide automatic stabilizers operation in crisis conditions, which induced the need for reforms (Six-Pack).…”

Section: Literature Overviewmentioning

confidence: 99%

Real Convergence of Western Balkan Countries to European Union in view of Macroeconomic Policy Mix

Krstevska

2018

Western Balkan (WB) countries have a clear orientation towards the European Union (EU), all of them currently being candidate or potential candidate countries. Moreover, the EU is an important trading partner of the WB economies, therefore, there is a recognizable need for convergence of this region towards the EU economy. The real convergence is a rather slow process and the WB region is still lagging behind the EU. This paper explores the catch up of the WB region during the global crisis that severely hit the EU economy, trying to identify potential changes in the convergence pace. In addition, this work makes a joint overview of the nominal and real convergence processes as well as the convergence of the general macroeconomic indicators of the WB countries to the EU, taking them as complementary and mutually self-supporting processes.

“…In October 2017, the Program was extended at least to September 2018 but in any case until there are sustained adjustments in the path of inflation in line with the price objective, and the monthly purchase amount was reduced to 30 billion euro. Many authors provide timeline on the ECB monetary accommodation, including Bastidon, Gilles & Huchet (2016), who provide several theoretical and practical aspects of the ECB monetary policy and its potential implications.…”

Section: Introductionmentioning

confidence: 99%

The Impact of the ECB’s Quantitative Easing Policy on Capital Flows in the Cesee Region

Angelovska–Bezhoska

Mitreska

Bojcheva-Terzijan

2018

This paper attempts to empirically assess the impact of the ECB’s quantitative easing policy on capital flows in the countries of the Central and South Eastern region. Given the tight trade and financial linkages of the region with the euro area, one should expect that the buoyant liquidity provided by the ECB might affect the size of the capital inflows. We test this hypothesis by employing panel estimation on a sample of 14 countries CESEE countries for the 2003-2015 period. Contrary to the expected outcome, the results reveal either negative or insignificant impact of the change in the ECB balance sheet on the different types of capital inflows. The results suggest that the magnitude of the crisis, to which the ECB responded to was immense, hence precluding any significant impact of the monetary easing on capital flows in the region. The inclusion of a dummy in the model, to control for the 2008 crisis confirms the findings from the first specification and also does not change the finding on the ECB quantitative easing impact on the capital flows. The impact of the crisis dummy on capital flows is negative and it holds for almost all types of capital inflows, except for the government debt flows, which is consistent with the countercyclical fiscal policies and rising public debt after the crisis.