IDEAS home Printed from https://ideas.repec.org/p/osf/socarx/rw3ms.html
   My bibliography  Save this paper

From Policy to Regime: the changing posture of the ECB between liquidity and collateral through the lens of Monetary Regime

Author

Listed:
  • Giordano, Matteo
  • Goghie, Alexandru-Stefan

Abstract

The evolution of the European Central Bank (ECB) and of the forms of monetary policy implemented in the Eurozone since its inception outline a more radical shift in the posture of the ECB rather than the simple recourse to new instruments of monetary policy. This paper explores the concept of monetary regime to understand under a systemic lens the changes occurred in the conventional and unconventional monetary policy operations, and how they have shaped the position of the ECB within the increasingly market-based financial system. We argue that the features of a monetary regime affect the processes of de- and re-politicization of the ECB. To do so, we explore three key but under-studied changes in the operations of the ECB: the shift from a corridor to a floor system with the fixed-rate full allotment (FRFA) procedure for its refinancing operations in 2008, the implementation of Securities Lending in the second half of the 2010s, and the introduction of the Transmission Protection Mechanism in 2022. These events, in turn, hinge on the evolving dynamics between liquidity and collateral, which not only define the frame of the monetary regime, but also allow for the central bank’s operations to have significant, though involuntary and indirect, fiscal consequences. Ultimately, this paper highlights the shift from monetary and fiscal concerns to financial ones, thus arguing that macroeconomic policies have become subordinated to financial logics that imply an increasing blurring of the separations between monetary and fiscal spheres.

Suggested Citation

  • Giordano, Matteo & Goghie, Alexandru-Stefan, 2023. "From Policy to Regime: the changing posture of the ECB between liquidity and collateral through the lens of Monetary Regime," SocArXiv rw3ms, Center for Open Science.
    • Handle: RePEc:osf:socarx:rw3ms
    DOI: 10.31219/osf.io/rw3ms
    as

    Download full text from publisher

    File URL: https://osf.io/download/6472337485df480153775f68/
    Download Restriction: no
    File URL: https://libkey.io/10.31219/osf.io/rw3ms?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Boissel, Charles & Derrien, François & Ors, Evren & Thesmar, David, 2017. "Systemic risk in clearing houses: Evidence from the European repo market," Journal of Financial Economics, Elsevier, vol. 125(3), pages 511-536.
    2. Moessner, Richhild & de Haan, Jakob, 2022. "Effects of monetary policy announcements on term premia in the euro area during the COVID-19 pandemic," Finance Research Letters, Elsevier, vol. 44(C).
    3. Luca Benati, 2008. "Investigating Inflation Persistence Across Monetary Regimes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(3), pages 1005-1060.
    4. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," The Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
    5. de Haan, J. & Eijffinger, Sylvester, 2016. "The Politics of Central Bank Independence," Other publications TiSEM 54f2c3e3-46f2-4763-b1ac-b, Tilburg University, School of Economics and Management.
    6. Daniela Gabor & Cornel Ban, 2016. "Banking on Bonds: The New Links Between States and Markets," Journal of Common Market Studies, Wiley Blackwell, vol. 54(3), pages 617-635, May.
    7. Adrian Van Rixtel & Gabriele Gasperini, 2013. "Financial crises and bank funding: recent experience in the euro area," BIS Working Papers 406, Bank for International Settlements.
    8. Saka, Orkun & Fuertes, Ana-Maria & Kalotychou, Elena, 2015. "ECB policy and Eurozone fragility: Was De Grauwe right?," Journal of International Money and Finance, Elsevier, vol. 54(C), pages 168-185.
    9. Loriano Mancini & Angelo Ranaldo & Jan Wrampelmeyer, 2016. "The Euro Interbank Repo Market," The Review of Financial Studies, Society for Financial Studies, vol. 29(7), pages 1747-1779.
    10. Perry Mehrling, 2010. "The New Lombard Street: How the Fed Became the Dealer of Last Resort," Economics Books, Princeton University Press, edition 1, number 9298.
    11. Martijn Boermans & Viacheslav Keshkov, 2018. "The impact of the ECB asset purchases on the European bond market structure: Granular evidence on ownership concentration," DNB Working Papers 590, Netherlands Central Bank, Research Department.
    12. de Haan, J. & Eijffinger, Sylvester, 2016. "The Politics of Central Bank Independence," Discussion Paper 2016-047, Tilburg University, Center for Economic Research.
    13. Abbassi, Puriya & Nautz, Dieter, 2012. "Monetary transmission right from the start: On the information content of the Eurosystem's main refinancing operations," The North American Journal of Economics and Finance, Elsevier, vol. 23(1), pages 54-69.
    14. Michael D. Bordo & Lars Jonung, 2001. "A return to the convertibility principle? Monetary and fiscal regimes in historical perspective. The internal evidence," European Economy - Economic Papers 2008 - 2015 159, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    15. Buiter, Willem & Sibert, Anne, 2005. "How the Eurosystem?s Treatment of Collateral in its Open Market Operations Weakens Fiscal Discipline in the Eurozone (and what," CEPR Discussion Papers 5387, C.E.P.R. Discussion Papers.
    16. Dubravko Mihaljek & Agne Subelyte, 2011. "Annex: Alternative central bank policy instruments," BIS Papers chapters, in: Bank for International Settlements (ed.), Capital flows, commodity price movements and foreign exchange intervention, volume 57, pages 87-100, Bank for International Settlements.
    17. Gabor, Daniela, 2021. "Revolution Without Revolutionaries: Interrogating the Return of Monetary Financing," SocArXiv ja9bk, Center for Open Science.
    18. Gongpil Choi & Federico Ortega & Mr. Manmohan Singh, 2021. "Emerging Market Securities Access to Global Plumbing," IMF Working Papers 2021/094, International Monetary Fund.
    19. Pier Domenico Tortola, 2020. "The Politicization of the European Central Bank: What Is It, and How to Study It?," Journal of Common Market Studies, Wiley Blackwell, vol. 58(3), pages 501-513, May.
    20. Charles Goodhart & Rosa Lastra, 2018. "Populism and Central Bank Independence," Open Economies Review, Springer, vol. 29(1), pages 49-68, February.
    21. William A. Allen & Richhild Moessner, 2013. "The Liquidity Consequences of the Euro Area Sovereign Debt Crisis," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 14(1), pages 103-126, January.
    22. Niels Gilbert, 2019. "Euro area sovereign risk spillovers before and after the ECB's OMT announcement," DNB Working Papers 636, Netherlands Central Bank, Research Department.
    23. Adam Smith & Richard Wagner & Bruce Yandle, 2011. "A theory of entangled political economy, with application to TARP and NRA," Public Choice, Springer, vol. 148(1), pages 45-66, July.
    24. Corrado Macchiarelli & Mara Monti & Claudia Wiesner & Sebastian Diessner, 2020. "The European Central Bank between the Financial Crisis and Populisms," Springer Books, Springer, number 978-3-030-44348-1, December.
    25. Golec, Pascal & Perotti, Enrico, 2017. "Safe assets: a review," Working Paper Series 2035, European Central Bank.
    26. Collignon, Stefan & Diessner, Sebastian, 2016. "The ECB's monetary dialogue with the European Parliament:efficiency and accountability during the Euro crisis?," LSE Research Online Documents on Economics 67308, London School of Economics and Political Science, LSE Library.
    27. Stefan Collignon & Sebastian Diessner, 2016. "The ECB's Monetary Dialogue with the European Parliament: Efficiency and Accountability during the Euro Crisis?," Journal of Common Market Studies, Wiley Blackwell, vol. 54(6), pages 1296-1312, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nyborg, Kjell G., 2017. "Central bank collateral frameworks," Journal of Banking & Finance, Elsevier, vol. 76(C), pages 198-214.
    2. Federico M. Ferrara & Donato Masciandaro & Manuela Moschella & Davide Romelli, 2021. "Political Voice on Monetary Policy: Evidence from the Parliamentary Hearings of the European Central Bank," BAFFI CAREFIN Working Papers 21159, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    3. Nyborg, Kjell G., 2017. "Reprint of: Central bank collateral frameworks," Journal of Banking & Finance, Elsevier, vol. 83(C), pages 232-248.
    4. Luque, Jaime, 2022. "The repo channel of cross-border lending in the European sovereign debt crisis," Journal of Financial Markets, Elsevier, vol. 59(PA).
    5. Fraccaroli, Nicolò & Giovannini, Alessandro & Jamet, Jean-François & Persson, Eric, 2022. "Ideology and monetary policy. The role of political parties’ stances in the European Central Bank’s parliamentary hearings," European Journal of Political Economy, Elsevier, vol. 74(C).
    6. Cassola, Nuno & Koulischer, François, 2019. "The collateral channel of open market operations," Journal of Financial Stability, Elsevier, vol. 41(C), pages 73-90.
    7. Ferrara, Federico M. & Masciandaro, Donato & Moschella, Manuela & Romelli, Davide, 2022. "Political voice on monetary policy: Evidence from the parliamentary hearings of the European Central Bank," European Journal of Political Economy, Elsevier, vol. 74(C).
    8. Mario Di Filippo & Angelo Ranaldo & Jan Wrampelmeyer, 2022. "Unsecured and Secured Funding," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(2-3), pages 651-662, March.
    9. repec:zbw:bofitp:2020_013 is not listed on IDEAS
    10. Corradin, Stefano & Heider, Florian & Hoerova, Marie, 2017. "On collateral: implications for financial stability and monetary policy," Working Paper Series 2107, European Central Bank.
    11. Alin Marius Andries & Anca Maria Podpiera & Nicu Sprincean, 2022. "Central Bank Independence and Systemic Risk," International Journal of Central Banking, International Journal of Central Banking, vol. 18(1), pages 81-130, March.
    12. Alin Marius Andries & Anca Maria Podpiera & Nicu Sprincean, 2022. "Central Bank Independence and Systemic Risk," International Journal of Central Banking, International Journal of Central Banking, vol. 18(1), pages 81-130, March.
    13. Jakob Korbinian Eberl, 2016. "The Collateral Framework of the Eurosystem and Its Fiscal Implications," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 69.
    14. Bulusu, Narayan & Guérin, Pierre, 2019. "What drives interbank loans? Evidence from Canada," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 427-444.
    15. Alexander Bechtel & Angelo Ranaldo & Jan Wrampelmeyer, 2023. "Liquidity Risk and Funding Cost," Review of Finance, European Finance Association, vol. 27(2), pages 399-422.
    16. D. Masciandaro, 2019. "What Bird Is That? Central Banking And Monetary Policy In The Last Forty Years," BAFFI CAREFIN Working Papers 19127, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    17. Dr. Daniel Kohler & Dr. Benjamin Müller, 2019. "Covered interest rate parity, relative funding liquidity and cross-currency repos," Working Papers 2019-05, Swiss National Bank.
    18. Oriola, Hugo, 2023. "Political monetary cycles: An empirical study," European Journal of Political Economy, Elsevier, vol. 79(C).
    19. Dufour, Alfonso & Marra, Miriam & Sangiorgi, Ivan, 2019. "Determinants of intraday dynamics and collateral selection in centrally cleared and bilateral repos," Journal of Banking & Finance, Elsevier, vol. 107(C), pages 1-1.
    20. Fraccaroli, Nicolò & Giovannini, Alessandro & Jamet, Jean-Francois & Persson, Eric, 2022. "Ideology and monetary policy: the role of political parties’ stances in the ECB’s parliamentary hearings," Working Paper Series 2655, European Central Bank.
    21. Corradin, Stefano & Eisenschmidt, Jens & Hoerova, Marie & Linzert, Tobias & Schepens, Glenn & Sigaux, Jean-David, 2020. "Money markets, central bank balance sheet and regulation," Working Paper Series 2483, European Central Bank.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:osf:socarx:rw3ms. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: OSF (email available below). General contact details of provider: https://arabixiv.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.