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Monetary policy in the United States and the euro area during the crisis

Author

Listed:
  • N. Cordemans

    (National Bank of Belgium, Research Department)

  • S. Ide

    (National Bank of Belgium, Research Department)

Abstract

In the wake of the two longer-term refinancing operations with a maturity of three years conducted in December 2011 and February 2012, amounts placed on the Eurosystem’s deposit facility surged to unprecedented high levels of around € 800 billion. The article clarifies how this high recourse to the deposit facility should be interpreted. First, daily changes in the amounts being placed on the deposit facility should not necessarily be interpreted as daily changes in stress on the interbank market as there is a seasonal pattern in the use of the deposit facility. That seasonal pattern stems from the fact that Eurosystem counterparties have to meet a reserve requirement on an average basis. Hence, it is better to watch the money market liquidity surplus, defined as the sum of the recourse to the deposit facility and the current account holdings in excess of the required reserves, as a proxy for the central bank’s intermediation role on the money market. Second, high recourse to the deposit facility is an automatic corollary to increased central bank liquidity provision because the relationship between the central bank and commercial banks can be seen as a closed system. Hence, as illustrated by some examples, large amounts being placed on the deposit facility are not informative as to whether or not the liquidity is actually “being put to use”, for instance, to grant credit to the non-financial sector or to pay back maturing bank debt. A number of examples illustrate this.

Suggested Citation

  • N. Cordemans & S. Ide, 2012. "Monetary policy in the United States and the euro area during the crisis," Economic Review, National Bank of Belgium, issue i, pages 39-63, June.
  • Handle: RePEc:nbb:ecrart:y:2012:m:june:i:i:p:39-63
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    File URL: https://www.nbb.be/doc/oc/repec/ecrart/ecorevi2012_h3.pdf
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    References listed on IDEAS

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    1. Laurence Ball, 2016. "Ben Bernanke And The Zero Bound," Contemporary Economic Policy, Western Economic Association International, vol. 34(1), pages 7-20, January.
    2. J. Boeckx & Ide,S., 2012. "What can we and can't we infer from the recourse to the deposit facility?," Economic Review, National Bank of Belgium, issue i, pages 31-37, June.
    3. Claudio Borio & Piti Disyatat, 2010. "Unconventional Monetary Policies: An Appraisal," Manchester School, University of Manchester, vol. 78(s1), pages 53-89, September.
    4. Hempell, Hannah Sabine & Kok, Christoffer, 2010. "The impact of supply constraints on bank lending in the euro area - crisis induced crunching?," Working Paper Series 1262, European Central Bank.
    5. John C. Williams, 2011. "Unconventional monetary policy: lessons from the past three years," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct3.
    6. Paul De Grauwe, 2011. "The European Central Bank: Lender of Last Resort in the Government Bond Markets?," CESifo Working Paper Series 3569, CESifo Group Munich.
    7. Joseph E. Gagnon & Matthew Raskin & Julie Remache & Brian P. Sack, 2011. "Large-scale asset purchases by the Federal Reserve: did they work?," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 41-59.
    8. Martina Cecioni & Giuseppe Ferrero & Alessandro Secchi, 2011. "Unconventional Monetary Policy in Theory and in Practice," Questioni di Economia e Finanza (Occasional Papers) 102, Bank of Italy, Economic Research and International Relations Area.
    9. Svensson, Lars E O, 1999. " Inflation Targeting: Some Extensions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(3), pages 337-361, September.
    10. Kotaro Ishi & Kenji Fujita & Mark R. Stone, 2011. "Should Unconventional Balance Sheet Policies Be Added to the Central Bank toolkit? a Review of the Experience so Far," IMF Working Papers 11/145, International Monetary Fund.
    11. Jack Meaning & Feng Zhu, 2011. "The impact of recent central bank asset purchase programmes," BIS Quarterly Review, Bank for International Settlements, December.
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    Cited by:

    1. J. Boeckx & Ide,S., 2012. "What can we and can't we infer from the recourse to the deposit facility?," Economic Review, National Bank of Belgium, issue i, pages 31-37, June.
    2. J. Boeckx, 2012. "What is the role played by the Eurosystem during the financial crisis ?," Economic Review, National Bank of Belgium, issue ii, pages 7-28, September.

    More about this item

    Keywords

    monetary policy; budgetary policy; Federal Reserve; Eurosystem; economic and financial crisis; sovereign debt crisis; non-standard measures; euro area; United States; independence;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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