ECB

Comment on the latest ECB council meeting (June 14)

The ECB is sending a clear signal that it will exit its QE program by the end of this year. The ECB’s announcement is courageous as risks to the euro area outlook have increased significantly in recent months. Yet the announcement is wise as the ECB needs to prepare markets early in order to avoid the Fed’s taper tantrum of a few years ago.

Yet the ECB is maintaining enough flexibility to react to risks, should they materialize. Unfortunately, it … [continue reading]

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ECB Monetary Policy

Comment on the latest ECB council meeting

The rising global uncertainty is now making it much harder for the European Central Bank to identify the right timing and speed for exiting its expansionary monetary policy stance. I still expect the ECB to end its QE program by the end of 2018, but the ECB will need to change its communication strategy. In order to remain flexible the ECB should not pre-commit itself to a particular policy path. This will fuel German objections, but it is important for … [continue reading]

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ECB Economic Policy Monetary Policy

“European Central Bank has to keep all its options open”

The ECB is keeping its course and following its expansionary monetary policy stance. There had been expectations in Germany that the ECB would promise to end its purchase program in September, but these have been disappointed. The ECB has to keep its options open. The recent turmoil in financial markets, the stronger euro and disappointingly weak inflation in the euro area don’t bode well for a swift end of the purchase program. Despite the change in forward guidance, I now … [continue reading]

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ECB Europe

Comment on the latest ECB council meeting

The ECB has to strike a delicate balance between preparing markets for an exit from QE and keeping its options open to extend its QE program further, if need be. The most difficult challenge for the ECB is that it is still not sufficiently fulfilling its price stability mandate despite a stronger than expected euro area recovery. The stronger Euro, which is pushing down inflation, does not make life any easier for the central bank.

After today’s press conference, an … [continue reading]

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Currency and Financial Markets ECB

Comment on the latest ECB council meeting

The ECB is acting wisely by resisting pressure for a faster exit from QE. Continuity and reliability are two important elements of the ECB’s policy stance to avoid a taper tantrum and excessive market volatility. I am confident that the economic recovery of the euro area will allow the ECB to end its QE program in September 2018. But it is an illusion to expect a fast rise in interest rates after the end of QE. The low interest rate … [continue reading]

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ECB Europe Monetary Policy

The ECB can only tighten its monetary policy gradually

The ECB has chosen a gradual and cautious exit from its expansionary monetary policy stance. The decision gives the ECB a maximum of flexibility for exiting QE. I expect the ECB to terminate its QE program after September 2018 and to raise rates for the first time in 2019 at the earliest. The ECB can tighten policy only gradually as it is only slowly approaching its price stability mandate. The ECB has to maintain a high degree of flexibility in … [continue reading]

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ECB Europe Monetary Policy

Statement on the lawsuit against ECB QE program

The decision of the German constitutional court concerning the lawsuit against ECB QE program is a false compromise. The constitutional court signals that it considers the ECB QE program as a violation of European law and to constitute monetary financing. Yet the constitutional court is not willing to take a decision itself at this stage, but rather asks the European court of justice (ECJ) for “advice”.

I expect that the ECJ will again support the ECB, as it did with … [continue reading]

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Currency and Financial Markets ECB Europe Monetary Policy

Statement on ECB interest rate decision

The ECB keeps its options open about the exit of its expansionary monetary policy stance. There has been no significant change in ECB communication. The statement by President Draghi makes a very gradual tapering of its bond purchases in 2018 the most likely path. Many open questions about ECB monetary policy remain unanswered. It is still open when the ECB will end its bond purchases and when it will start raising interest rates.

The overreaction of financial markets to ECB … [continue reading]

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Currency and Financial Markets ECB Europe

Statement on the ECB council meeting (June 8, 2017)

The ECB has now cautiously started its monetary policy reversal, even if only through words rather than deeds. The change in communication is an important step in the right direction.

Many in Germany consider the ECB’s exit as too slow. Many underestimate the importance of the ECB decision, which signals a sustained monetary policy tightening for the first time in more than ten years. The ECB is right in preparing the exit gradually and not abruptly in order not to … [continue reading]

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Business Cycles, Growth, Economic Structure Currency and Financial Markets ECB Economic Policy Europe Macroeconomics

Statement on the ECB council meeting (April 27, 2017)

It is wise for the ECB to stick to its policy strategy and not let itself be impressed by criticism from Germany. The pressure from Germany for the ECB to end its expansionary policy stance prematurely has increased. The ECB is right to resist the pressure from Germany as the economic and financial risks for the euro area are still significant.

The ECB is only gradually getting closer to meeting its price stability mandate as in particular core inflation is … [continue reading]

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