monetary perspectives on the financial crisisyashiv/crisis-jg.pdf · monetary perspectives on the...
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Monetary Perspectives on the Financial Crisis
Jordi Galí CREI, UPF and Barcelona GSE
June 2014
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Monetary Policy in “Normal Times”
Policy rates
Market interest rates
Aggregate demand
Output, employment,
inflation
Objective: Price stability
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Source FRB Dallas
Central Banks’ Response to the Crisis: Policy Rates
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Monetary Policy during the Financial Crisis
Policy rates
Market interest rates
Aggregate demand
Output, employment,
inflation
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Market Interest Rates: Loan rates vs. Euribor
Font: Banco de España, Informe Mensual
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Policy rates
Market interest rates
Aggregate demand
Output, employment and inflation
Monetary Policy during the Financial Crisis
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Font: Banco de España, Informe Mensual
Bank Loans Growth Rate: Spain, 2005-2010
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Font: Banco de España, Informe Mensual
Bank Loans Growth Rate: Spain, 2011-2014
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Policy rates
Market interest rates
Aggregate demand
Output, employment,
inflation
Monetary Policy during the Financial Crisis
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Monetary Policy under Greenspan and Bernanke: Pre-Crisis
Font: Galí (2011)
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Font: Galí (2011)
Monetary Policy under Greenspan and Bernanke
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Monetary Policy in the Euro Area
Font: Galí (2011)
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Slow Recovery: Euro Unemployment Rate
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Slow Recovery: U.S. Employment Ratio
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Slow Recovery: What to do?
Unconventional Monetary Policy? ◦ ECB: LTRO, TLTRO ◦ FED: QE, forward guidance
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ECB Balance Sheet: Liabilities
Font: ECB, Annual Report 2013
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Font: Atlanta Fed (Economic & Financial Highlights)
Fed Balance Sheet: Liabilities
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Slow Recovery: What to do?
Unconventional Monetary Policy? ◦ ECB: LTRO, TLTRO ◦ FED: QE, forward guidance
limited effectiveness Labor cost reductions (wages, payroll
taxes,...)? Fiscal expansion? ◦ Debt and taxes already too high
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Slow Recovery: What to do?
Unconventional Monetary Policy? ◦ ECB: LTRO, TLTRO ◦ FED: QE, forward guidance
limited effectiveness Labor cost reductions (wages, payroll
taxes,...)? Fiscal expansion? ◦ Debt and taxes already too high ◦ Alternative: money-financed public investment