Archive for May 10th, 2019

Targeting financial stability: macroprudential or monetary policy?

May 10, 2019

David Aikman, Julia Giese, Sujit Kapadia and Michael McLeay in this ECB paper look at this question:

Monetary and macroprudential policies are set with reference to economic and financial cycles. This paper develops a simple macroeconomic model with the possibility of a financial crisis that describes how interest rates and macroprudential policy – as captured by the countercyclical capital buffer (CCyB) – interact in response to different shocks. It characterises situations in which the policy instruments move in the same, and in the opposite, direction. And it considers the appropriate design of policy under a range of potential shocks and challenges which policymakers may face.

First, the paper finds that there are minimal gains from monetary and macroprudential policy being set by a single policymaker compared with two distinct policymakers, one with a monetary policy objective and the other with a macroprudential policy objective.

Second, the paper shows that if monetary policy becomes constrained by the effective (zero) lower bound to interest rates, the trade-off faced by policy makers is worse because the CCyB must balance both objectives.  In particular, it should be activated later than otherwise, because its demand costs are larger without monetary policy to offset them.

Third, the paper explores a case in which there are leakages from tight macroprudential policy applied to banks into greater credit growth in the marketbased finance sector.The presence of market-based finance limits the effectiveness of the CCyB relative to monetary policy which affects all sectors equally and so it should be used less actively in the face of a credit boom.

In a final extension, the paper explores the risktaking channel of monetary policy. Tightening the CCyB is, by assumption, now less effective in constraining credit growth as low interest rates continue to induce high risktaking. But the CCyB remains a somewhat effective tool as it still improves resilience.

Hmm…

 

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NSE Case: The Indian financial sector story is unravelling

May 10, 2019

My new piece in moneycontrol on the NSE case.

Bank of England and Financial Times schools blogging competition…

May 10, 2019

BoE and FT organised a blogging competition (it was second edition).

They have put up the winners essays on the Bank Underground Blog:

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Spelling mistake in Australian banknote..

May 10, 2019

I had pointed to this development in Australian banknotes (Sep-2018). RBA in her new banknotes has decided to feature Edith Cowan the Aboriginal writer who was the very first female member of an Australian Parliament. The notes would also feature a quote from Cowan.

Apparently Cowan’s quote spelt ‘responsibilty’ wrongly which has gone in the banknotes!

The goof first became known on Thursday when a listener on radio outlet Triple M sent the station a magnified photo of the Reserve Bank of Australia’s (RBA) new A$50 note highlighting the word “responsibility” misspelt as “responsibilty” three times.

The A$50 currency is the most widely circulated in Australia and accounts for nearly half the total value of other banknotes in use, according to the RBA.

The note came into circulation on Oct. 18, 2018 with new security features designed to deter counterfeiting and with tactile elements for the visually impaired. It sports a head-shot of Edith Cowan, who served as the first woman elected to an Australian legislature from 1921 to 1924.

The typo appears in an excerpt of Cowan’s maiden speech to Western Australia’s parliament, which features on the A$50 note.

The quote, which is repeated over on the banknote, reads: “It is a great responsibilty (sic) to be the only woman here and I want to emphasise the necessity which exists for other women being here.”

Phew!!

 

Iceland economy since the 2008 crisis

May 10, 2019

Iceland economy was one of the worst effected during the 2008 crisis.

Már Guðmundsson, outgoing Governor of the Central Bank  faced much of the brunt. In this final speech reviews the developments since 2008.

First, the crisis:

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