EMU Monitor
The case for a macro prudential framework
01.03.2007
By: Casper de Vries, Erasmus University Rotterdam
World monetary policy has been too lax for too long. The liquidity overflow should only be put back in the box through a gradual tightening of the money markets.
How to strenghten the EU's external representation: A modest proposal
21.02.2007
By: Barry Eichengreen, University of California, Berkeley
The EU is larger economically than the US, but exerts less influence in international monetary and financial negotiations. This is an untenable position in a world where the balance of economic power is shifting toward emerging markets.
How to extract information from the monetary pillar
06.02.2007
By: Georg Rich, Rich International Consulting
Money has largely gone out of fashion among monetary policy makers. It is not surprising, therefore, that the ECB’s second pillar has aroused controversy.
What does a flat yield curve tell us?
30.01.2007
By: Chris Waller, University of Notre Dame
How do we interpret a flat yield curve in terms of the ECB’s credibility as an inflation fighter? There are three potential explanations, not all negative.
Some thoughts on the Lucas Paradox
23.01.2007
By: Alan Ahearne, Bruegel and NUI Galway
The Lucas paradox says that while economic theory predicts that capital flows from rich to poor countries, there is little empirical evidence in support of the theory. But for the euro area member countries, the theory seems to be just right. One explanation is that economists may have underestimated the extend to which people prefer to keep their savings in their own currency even if there are higher return investments available in foreign currencies.
Should central banks target anything other than inflation (such as money supply)?
15.01.2007
By: Patrick Minford, Cardiff Business School
The ECB has ‘two pillars’- an inflation target and a money supply growth target range. The two are in conflict. Battle rages monthly within the ECB council. What should it do?
A gloomy anniversary
09.01.2007
By: Jean Pisani-Ferry, Bruegel
The euro has been in our pockets for five years and citizens aren’t happy. True, a majority of them still regard the common currency as advantageous. But according to a recent Eurobarometer survey, support has been dropping for five years now and in Italy, the Netherlands and Greece, a majority of the citizens express a negative opinion.
Should 3.5% be the end of the story?
08.12.2006
By: Manfred J.M. Neumann
In evaluating the policy stance it is necessary to take a long-run view and to analyse the trends in money creation and interest rates. Money is the long-run anchor of asset and consumer prices. As a rule of thumb the trend growth of money should equal the ECB’s normative rate of inflation (2 %) plus the product of the income elasticity of money demand (1.5) and the trend rate of real income growth (1994-2006: 2 %). The formula provides an inflation-neutral growth rate for the money stock M3 of 5 %. This yardstick implies that monetary policy is much too accommodative since spring 2001
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