financial stability

The New Monetary Policy Revolution: Advice and Dissent

Central banks have undertaken a revolution in monetary policy. They reluctantly abandoned conventional wisdom designed to keep them out of political trouble. This paper looks at this revolution through the lens of the divergent perspectives of the IMF and the BIS. The Jeremiahs predicted this revolution would fail to reduce unemployment and lead only to financial ruin. The Jeremiahs were proved wrong on both counts. Radical whatever-it-takes monetary expansion rescued a depressed world economy. Regulatory reform kept financial risks in check.

Effects of asset purchases and financial stability measures on term premia in the euro area

We study the effects of the announcements of ECB asset purchases and of financial stability measures in the euro area in the wake of the global financial crisis and the euro area sovereign debt crisis on ten-year government bond term premia in eleven euro area countries. We find that the term premia of euro area countries with higher sovereign risk, as measured by sovereign CDS spreads, decreased more in response to the announcements of asset purchases and financial stability measures.

Building on incomplete foundations: financial stability policy since the crash

Economists understand that a fit for purpose policy regime requires a reliable general equilibrium model of the system in question and a well specified description of the objectives that the policymaker is trying to pursue. The current financial stability regime has neither and without these critical foundations the regime is fundamentally fragile and incomplete. There is no anchor on the conduct of policy, an absence in genuine accountability and, as a result, reputational risks for policy institutions.

Exploring the Short- and Long-Run Links from Bank Competition to Risk – Reconciling Conflicting Hypotheses?

The subject of bank competition and risk has returned to the fore with the financial crisis of 2008-9, with a common view being that competition between financial institutions during the preceding boom was at the core of the crisis. This in turn implies that the benefits of banking competition for economic growth and efficiency need to be placed in the balance. On the other hand, there is an extensive literature, generally estimated on pre-crisis data, which finds conflicting results on the relation between competition and risk.