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Macroeconomic effects of unconventional monetary policy & the ECB’s new stimulus p...

16 Sep

Martin Ertl

New monetary stimulus package lowers the deposit facility rate to -0.5 % and restarts QE at a monthly pace of 20 billion Euro (open ended).Previous unconventional monetary policy has led to a rise in inflation by 0.6 %-age points. The European Central Bank provides additional monetary stimulus by lowering the interest rates further into negative territory and restarting net asset purchases (QE). The cut of the interest rate on the deposit facility by 10 basis points (bp), to -0.5 %, was widely expected. Part of the banks’ excess liquidity holdings will be exempt from negative deposit rates, introducing a two-tier system. The exempt tier, which is initially set at 6 times an institution’s minimum reserve requirements, is remunerated at an annual rate of 0 %. QE will start in November at a monthl...     » Weiterlesen


New ECB QE and its effects on interest rates (Martin Ertl)

09 Sep

Martin Ertl

The ECB is expected to introduce new unconventional monetary policy measures.First, we calculate the free-float of German government bonds, which has become very low.In addition, we make use of recent evidence about QE effects on term premia to sketch monetary policy options.Large scale asset purchases (LSAP), or “quantitative easing” (QE), are intended to decrease long-term yields and ease financing conditions thereby stimulating aggregate demand and bring inflation back in line with the central bank’s price stability objective. The ECB launched the asset purchase programme (APP) in January 2015, which initially pledged the purchase of 60 billion EUR of securities each month. The asset purchases ended in December 2018 when the portfolio had reached around 2.6 trillion EUR.In the wake of ...     » Weiterlesen


Challenges for Monetary Policy: News from the Jackson Hole Economic Symposium (Mar...

05 Sep

Martin Ertl

Trade policy uncertainty is the Fed’s main concern and cannot be easily incorporated into its monetary policy framework.Further clarification of central bank communication can shield from the perception that monetary policy decisions might be politically motivated, Orphanides suggests.Jordà and Taylor argue that central banks cannot escape adopting a global perspective in setting monetary policy.An international perspective is also emphasized by Kalemli-Özcan who focuses on international spillovers of US monetary policy stressing the importance of changes in risk perception.Krishanumurthy and Lustig emphasize the continued importance of the US dollar exchange rate in the global credit cycle, driven by the convenience yield of US Treasuries.The Fed is fighting symptoms of a problem it cann...     » Weiterlesen


Central Europe: Resilience weakens & Russia: Growth variability (Martin Ertl)

19 Aug

Martin Ertl

Central Europe: Resilience weakensEconomic growth continues at a slightly more moderate pace in Central Europe.Recent industrial production figures might herald weakening resilience to the slowing Euro Area’s business cycle.The dovish turn by the ECB has stopped monetary policy normalization in Central Europe. Economic growth momentum in Central Europe (CE) remains well above the Euro Area (EA), yet uncertainty about CE’s resilience to the EA’s business cycle slowdown rises. Last week’s release of gross domestic product (GDP) for the second quarter (Q2 19) showed growth at 1.1 % in Hungary, 0.8 % in Poland, 0.6 % in the Czech Republic and 0.4 % in Slovakia (quarter-on-quarter, seasonally adjusted). The Euro Area economy expanded at 0.2 % (q/q, sa) during the same period. Compared t...     » Weiterlesen


Does the US economy need a mid-cycle adjustment? (Martin Ertl)

06 Aug

Martin Ertl

The US business cycle remains healthy, despite being the longest in history.Personal consumption drives the expansion, supported by a strong labor market.Fed lowered interest rate to 2.25 %, in light of trade related uncertainty and downside risks to the outlook.There is no clear-cut monetary policy case for the Fed’s mid-cycle adjustment, which remains ambiguous also within the FOMC. The US economy continues its longest expansion since the end of WW II, exceeding the Great Moderation (03/1991-02/2001) by two months. The Bureau of Economic Analysis (BEA) has recently released its preliminary estimate of gross domestic product (GDP) for the second quarter of 2019 (Q2 19) at 2.1 % (seasonally adjusted at annual rates). With GDP growth at 3.1 % in Q1 2019, the US economy has expanded more rapidly during...     » Weiterlesen

Martin Ertl

Chief Economist, UNIQA Capital Markets GmbH

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