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Financial Crisis, Global Liquidity and Monetary Exit Strategies

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  • Ansgar Belke

Abstract

We develop a roadmap of how the ECB should further reduce the volume of money (money supply) and roll back credit easing in order to prevent inflation. The exits should be step-by-step rather than one-off. Communicating about the exit strategy must be an integral part of the exit strategy. Price stability should take precedence in all decisions. Due to vagabonding global liquidity, there is a strong case for globally coordinating monetary exit strategies. Given unsurmountable practical problems of coordinating exit with asymmetric country interests, however, the ECB should go ahead - perhaps joint with some Far Eastern economies. Coordination of monetary and fiscal exit would undermine ECB independence and is also technically out of reach within the euro area.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.355795.de/dp995.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 995.

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Length: 34 p.
Date of creation: 2010
Date of revision:
Handle: RePEc:diw:diwwpp:dp995

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Keywords: Exit strategies; international policy coordination and transmission; open market operations; unorthodox monetary policy;

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References

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  1. Ansgar Belke & Niklas Potrafke, 2011. "Does Government Ideology Matter in Monetary Policy? A Panel Data Analysis for OECD Countries," Working Paper Series of the Department of Economics, University of Konstanz 2011-48, Department of Economics, University of Konstanz.
  2. Ansgar Belke & Matthias Göcke & Martin Günther, 2009. "When Does It Hurt?: The Exchange Rate "Pain Threshold" for German Exports," Discussion Papers of DIW Berlin 943, DIW Berlin, German Institute for Economic Research.
  3. Reinhart, Carmen & Rogoff, Kenneth, 2009. "The Aftermath of Financial Crises," CEPR Discussion Papers 7209, C.E.P.R. Discussion Papers.
  4. Frankel, Jeffrey A & Rockett, Katharine E, 1988. "International Macroeconomic Policy Coordination When Policymakers Do Not Agree on the True Model," American Economic Review, American Economic Association, vol. 78(3), pages 318-40, June.
  5. Ansgar Belke & Daniel Gros, 2005. "Is A Unified Macroeconomic Policy Necessarily Better for a Common Currency Area?," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 266/2005, Department of Economics, University of Hohenheim, Germany.
  6. Ansgar Belke & Andreas Rees, 2009. "The Importance of Global Shocks for National Policymakers: Rising Challenges for Central Banks," Discussion Papers of DIW Berlin 922, DIW Berlin, German Institute for Economic Research.
  7. Tesfaselassie, Mewael F., 2009. "Looking forward: Exiting unconventional monetary policy," Open Access Publications from Kiel Institute for the World Economy 32849, Kiel Institute for the World Economy (IfW).
  8. Jürgen von Hagen & Jean Pisani-Ferry & Jakob von Weizsäcker, 2009. "A European Exit Strategy," Policy Briefs 328, Bruegel.
  9. Claudio Borio & Piti Disyatat, 2010. "Unconventional Monetary Policies: An Appraisal," Manchester School, University of Manchester, vol. 78(s1), pages 53-89, 09.
  10. Frederic S. Mishkin, 2009. "Is Monetary Policy Effective during Financial Crises?," American Economic Review, American Economic Association, vol. 99(2), pages 573-77, May.
  11. Belke, Ansgar, 2002. "Towards a Balanced Policy Mix under EMU: Co-ordination of Macroeconomic Policies and ‘Economic Government’?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 17, pages 21-53.
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Cited by:
  1. Treu, Johannes, 2010. "Anmerkungen zur möglichen geldpolitischen Exit-Strategie der EZB," Wirtschaftswissenschaftliche Diskussionspapiere 04/2010, Ernst Moritz Arndt University of Greifswald, Faculty of Law and Economics.

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