We thank Otmar Issing for sending a recent “Memorandum on the ECB’s Monetary Policy” in response to CFS distributions. To be sure, the broad content of the message was covered in the financial press. However, meaningful nuances and details are only apparent with a full read. Hence, it may be of interest to CFS friends.
Hervé Hannoun, Former First Deputy Governor, Banque de France, Paris
Otmar Issing, Former Member of the ECB-Executive Board, Würzburg
Klaus Liebscher, Former Governor Oesterreichische Nationalbank, Vienna
Helmut Schlesinger, Former President Deutsche Bundesbank, Oberursel
Jürgen Stark, Former Member of the ECB-Executive Board, Frankfurt
Nout Wellink, Former Governor De Nederlandsche Bank, Amsterdam
Judgement shared by:
Jacques de Larosière, Former Governor Banque de France, Paris
Christian Noyer, Former Governor Banque deFrance, Paris
The full memorandum is available at
Wishing you the best into the Holiday Season and New Year!
CFS is delighted to share Robert Hormats and Yves-Andre Istel’s personal views on “Inequality Perils from Lower Rates.” They contend that:
- Low interest rate policies have become increasingly ineffective in fostering equitable growth.
- Negative effects of ultra‐low rates have been underestimated and are greater than generally thought, especially in increasing inequality.
- Therefore, a new mix of monetary/fiscal policies with a long-term structural focus is called for.
Yves and Bob have been thoughtful and engaged with CFS. Robert Hormats is the former Undersecretary of State for Economic Growth, Energy, and the Environment. Yves‐Andre Istel is a Senior Advisor to Rothschild & Co.
The full report is available at
I had the pleasure of presenting “Monetary Policy Paradigm Shifts” as well as delivering conference summary remarks at a discussion hosted by the Shanghai Development Research Foundation (SDRF). The conference hosts beautifully structured the inquiry regarding monetary policy across three areas. Corresponding conclusions follow:
– “Modern Monetary Theory (MMT)” is neither modern nor monetary. It is theory. CFS has avoided discussing this topic; however, threads seem to be drifting into mainstream thinking. MMT has already been tried and performed poorly. Our assessment rests on studies and empirical evidence including Gail Makinen’s “Studies in Hyperinflation & Stabilization” published by CFS in 2014.
– “Fundamental changes in theory and policy today” are a function of three policy miscalculations since 2002. Monetary mistakes in the past have paved the way for more experiments and the surfacing of ideas such as MMT.
– “The effect on global markets and economies” is to skew incentives for savers and investors, distort market signals, and limit growth.
Although tricky, a slow and careful restoration of normalcy is essential. It is today’s critical constrained maximization problem.
View the remarks at www.centerforfinancialstability.org/research/ShanghaiDRF_111819.pdf
We are delighted to share Jacques de Larosière’s latest thinking on “The Monetary Policy Challenge.” Jacques thoughtfully evaluates the 2% inflation target so prevalent in advanced economy central banks today. His assessment is based on careful examination of structural determinants of inflation as well as distortions arising from equilibrium inflation consistently falling short of its target.
He chronicles unintended consequences from excessively accommodative monetary policy – which stretch from a weakening of the banking system, deterioration of pension institutions to the proliferation of zombie companies.
“Who could reasonably believe that lowering already so low rates would strengthen growth?”
He notes that it “is not too late to act” and offers concrete solutions.
The full report is available at www.CenterforFinancialStability.org/research/de_Larosiere_MPC_112519.pdf
Jacques de Larosière is the Chairman of the Strategic Committee of the French Treasury and Advisor to BNP Paribas. He previously served as the President of the European Bank for Reconstruction and Development (EBRD), Governor of the Banque de France, and Managing Director of the International Monetary Fund (IMF).
CFS Special Counselor and Johns Hopkins professor Steve Hanke delivers the John Ise Distinguished Lecture at the University of Kansas – moderated by CFS Director of Advances in Monetary and Financial Measurement and KU Oswald Distinguished Professor of Macroeconomics.
Hanke and Barnett explored monetary systems throughout the world, tariffs and their effects on trade deficits, abolishing time zones and changing the calendar, plus “everything under the sun.” View video
The CFS co-organized a “Future of the Global Monetary and Financial System: 75 years after Bretton Woods” roundtable with the Euro 50 Group. The roundtable gathered high-level personalities coming from all over the world.
My final takeaways are:
- First, the time is right for the Bretton Woods Institutions (BWIs) to exercise greater leadership. The IMF is uniquely situated to help govern effectively and navigate in an increasingly complex and challenging world. But, with greater complexities and areas of engagement comes the risk of mission creep.
- Second, the international monetary and financial system would benefit from a move with great purpose over time to a more rules-based system.
- Third, policy actions today would benefit from a system-wide and longer-term perspective.
A roundtable summary and conclusions are available at
The conference agenda and bios are available at
CFS is delighted to publish a thoughtful piece by Mickey Levy – Berenberg Capital Markets, Chief Economist for the Americas and Asia and Shadow Open Market Committee member.
In “Monetary Realities Facing the ECB, Fed and BoJ: More Easing Won’t Stimulate the Economy,” Mickey digs into the monetary policy transmission channels to assess growth implications of policy alternatives and considers the risks of excessive reliance on monetary easing.
He illustrates why further eases may not be the elixir for future growth. The paper is available at www.CenterforFinancialStability.org/research/Monetary_Policy_Realities_072919.pdf.
The Center for Financial Stability (CFS) recently hosted a roundtable discussion on European Central Bank (ECB) monetary policy with Philipp Hartmann. Philipp is Deputy Director General for research at the ECB and one of the founders of its research department.
Philipp’s presentation – covered the first 20 years of ECB policy, the relatively wide range of monetary instruments, defining new ones, and the strategic underpinning of its policy framework – available at http://www.CenterforFinancialStability.org/research/20190717_ECB_Monetary_Policy_Hartmann.pdf
The Shanghai Development Research Foundation (SDRF) recently hosted a superb dialog on issues stretching from China, the international monetary system, re-thinking the nature of money, among others. I had the pleasure of presenting on “Market Implications from Unconventional Monetary Policies.”
My remarks centered on:
The need to assess the normalization of monetary policies through the lens of major macro shifts over the last 10 years.
Specifically, three “never befores” need to be resolved. For instance, “never before” has there been such 1) large scale intervention by central banks and governments; 2) growth in the financial regulatory apparatus and labyrinth of rules governing markets; and 3) distortions across a wide range of financial markets.
Here, CFS monetary and financial data illustrate why goods price inflation has remained subdued and – in contrast – asset price inflation has not.
Evaluation of long-term stock and bond market valuations reveal market distortions.
Speculative positioning has been actively influenced by the patterns of rise and restraint in balance sheet operations in recent years.
Going forward, officials would benefit by seeking balance among these three “never before” forces.
For slides accompanying the presentation: http://www.centerforfinancialstability.org/speeches/ShanghaiDRF_090517.pdf
On a parenthetical note, I left China excited with advances in mobile pay. It will redefine the nature of money.
Mickey D. Levy (Chief Economist of Berenberg Capital Markets for the Americas and Asia) testified before the House Financial Services Committee on monetary policy.
He focused on how non-monetary factors including a growing web of government taxes, regulations and mandated expenses were harming the economy.
His line of thinking is of special note as these themes have been revealed over the years by CFS Divisia monetary aggregates and components.
His Testimony Resetting Monetary Policy is available online – http://financialservices.house.gov/uploadedfiles/hhrg-114-ba19-wstate-mlevy-20161207.pdf