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Negative Rates and Seigniorage: Turning the central bank business model upside down? The special case of the ECB

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  • Belke, Ansgar
  • Gros, Daniel

Abstract

Adjustment to an external imbalance is more difficult within a monetary union if wages are sticky. Periods of high unemployment are usually necessary to achieve the required real depreciation (internal devaluation). Gradual adjustment is usually recommended to distribute the output and employment cost over time. This paper takes into account that gradual adjustment also has a cost in terms of higher current account deficits and thus a higher debt, and ultimately higher debt-service costs. We calculate the optimal path/speed of price and wage adjustment in terms of deeper parameters like the slope of the Phillips curve, the degree of openness, etc. Gradual adjustment is not always optimal.

Suggested Citation

  • Belke, Ansgar & Gros, Daniel, 2016. "Negative Rates and Seigniorage: Turning the central bank business model upside down? The special case of the ECB," CEPS Papers 11753, Centre for European Policy Studies.
    • Handle: RePEc:eps:cepswp:11753
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    References listed on IDEAS

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    1. Gros, Daniel & Alcidi, Cinzia & Belke, Ansgar & Coutinho, Leonor & Giovannini, Alessandro, 2014. "Implementation of the Macroeconomic Adjustment Programmes in the Euro Area: State-of-Play," CEPS Papers 9017, Centre for European Policy Studies.
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    6. Gros, Daniel & Alcidi, Cinzia & Belke, Ansgar & Coutinho, Leonor & Giovannini, Alessandro, 2014. "State-of-play in implementing macroeconomic adjustment programmes in the euro area," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100407, Verein für Socialpolitik / German Economic Association.
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    9. repec:zbw:rwirep:0482 is not listed on IDEAS
    10. Ansgar Belke & Daniel Gros & Alcidi Cinzia & Leonor Coutinho & Alessandro Giovannini, 2014. "Exit State-of-play in Implementing Macroeconomic Adjustment Programmes in the Euro Area," ROME Working Papers 201405, ROME Network.
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    3. Massoc, Elsa Clara, 2022. "How do Members of the European Parliament (MEPs) hold the European Central Bank (ECB) accountable? A descriptive quantitative analysis of three accountability forums (2014-2021)," LawFin Working Paper Series 40, Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin).
    4. Massoc, Elsa C., 2022. "Climate change versus price stability: How "green" central bankers and members of the European parliament became pragmatic (yet precarious) bedfellows," LawFin Working Paper Series 33, Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin).
    5. Meixing Dai, 2020. "La réponse de la BCE face à la pandémie de Covid-19," Bulletin de l'Observatoire des politiques économiques en Europe, Observatoire des Politiques Économiques en Europe (OPEE), vol. 42(1), pages 5-14, July.
    6. Economides, George & Papageorgiou, Dmitris & Philippopoulos, Apostolis, 2020. "Macroeconomic policy lessons from Greece," LSE Research Online Documents on Economics 107155, London School of Economics and Political Science, LSE Library.
    7. Gros, Daniel, 2017. "Tightening by Stealth: Why keeping the balance sheet of the Federal Reserve constant is equivalent to a gradual exit," CEPS Papers 12652, Centre for European Policy Studies.
    8. Gros, Daniel, 2017. "Implications of the Expanding Use of Cash for Monetary Policy," CEPS Papers 12661, Centre for European Policy Studies.
    9. Berthold, Kristin & Stadtmann, Georg, 2018. "The fear of float of the Swiss National Bank," Discussion Papers 404, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.

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