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Tag Archives: European Central Bank (ECB)

Corporates are responding to the new ECB corporate sector purchase programme

We have observed a sharp increase in corporate bond issuance following the ECB’s announcement in March this year, but it is too early to see the effects on investment by non-financial corporations. With the ECB’s purchases of corporate bonds, which started on the 8th of June, the ECB’s interventions in bond markets have become much more targeted. The Corporate Sector Purchase Programme (CSPP) involves outright purchases of investment grade euro-denominated bonds issued by non-bank...

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Are central bank(er)s still credible?

Both the Fed and the ECB have managed to remain credible since the financial crisis, but their credibility levels have evolved differently. Since inflation in the US and the euro area has been similar in the past 8 years, the difference in the way that credibility has evolved is the result of the different macroeconomic policy mix applied. As policymakers prepare to go to unexplored lengths in using unconventional monetary measures (Gürkaynak and Davig 2015; Roubini 2016; Demertzis and...

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The use of ECB liquidity

The Eurosystem’s regular open market operations consist of one-week liquidity-providing operations (MROs), and three-month liquidity-providing operations (LTROs). We have updated data on the use of these operations by country. German banks were the main receivers of Eurosystem liquidity prior to the crisis, receiving 60% of total liquidity provided in 2007. However, at the height of the debt crisis, in July 2012, Spanish, Italian and French banks were the biggest users of the...

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European banking supervision: compelling start, lingering challenges

The new European banking supervision system is broadly effective and, in line with the claim often made by its leading officials, tough and fair, but there are significant areas for future improvement. European banking supervision (also known as the Single Supervisory Mechanism) is the first step in Europe’s banking union. Some 18 months after its official start on 4 November 2014, Bruegel has published what we believe is the first in-depth early assessment of how it works in...

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European banking supervision: the first eighteen months

The Blueprint provides a review of the first 18 months of European banking supervision. It reviews the overall situation and the situation in a number of euro-area countries. It provides important insights into the start of a new policy regime that involves profound change for the European banking landscape European banking supervision, also known as the Single Supervisory Mechanism, is the first and arguably the main component of European banking union. In late 2014,...

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Brexit and the UK’s Euro-denominated market: the role of clearing houses

Clearing houses in the UK operate an extremely sizable market in euro-denominated transactions. However, even though the numbers are big in value terms, in substance, clearing houses shifting to the continent will not make a big difference to the UK economy and employment. Arguably, there is a case for the ECB to claim that euro area business of clearing houses be relocated. The UK is home to both the largest “over the counter” (OTC) Euro foreign exchange transactions market and the...

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ECB decisions put lack of fiscal union in the spotlight

Fiscal policy in the euro area is hardly supporting the recovery and the ECB. The EU needs a a proper fiscal union in order to stabilise the economy and inflation. We see four main avenues for achieving a viable fiscal framework. The ECB is taking bold action to achieve its inflation target, but its policies are beginning to look desperate.  The euro area and the ECB are suffering from the same problem: fiscal and structural policies are not playing their part, and monetary policy alone is...

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ECB TLTRO 2.0 – Lending at negative rates

On Thursday, the ECB surprised observers by announcing a new series of four targeted longer-term refinancing operations (TLTRO II) to be started in June 2016. The incentive structure of the programme has changed: on one hand, this TLTRO II could be the first case of lending at negative rates; on the other hand, the link with lending to the real economy might have been weakened. The ECB first announced its targeted long-term refinancing operations (TLTRO)  in summer 2014, and operations...

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Central banks: from omnipotence to impotence?

Like the price of financial assets, the market assessment of the capacity of central banks to achieve their price stability objective fluctuates between omnipotence and impotence. We do not agree with this binary view of the world and we examine in this post the case of the European Central Bank (ECB). We argue that the ECB still has some instruments left. It should consider moving beyond increasing sovereign debt purchases, which would be ineffective and pose risks. More important is to step...

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The impotency of central banks

What’s at stake: The negative market reaction to the latest efforts to provide further monetary stimulus has generated an important discussion on whether central banks have lost credibility in their abilities to fight downside risks and shore up economies. From potency to impotency Leo Grohowski writes that central bank policies and the uncertainty around their effectiveness is the big macro concern right now. William Watts writes that with central banks continually undershooting inflation...

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