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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.

Suggested Citation

  • Ansgar Belke, 2010. "Financial Crisis, Global Liquidity and Monetary Exit Strategies," Discussion Papers of DIW Berlin 995, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp995
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    References listed on IDEAS

    as
    1. Jean Pisani-Ferry & Jakob von Weizsäcker & Jürgen von Hagen, 2009. "A European Exit Strategy," Bruegel Policy Brief 328, Bruegel.
    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. Belke, Ansgar & Potrafke, Niklas, 2012. "Does government ideology matter in monetary policy? A panel data analysis for OECD countries," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 1126-1139.
    4. 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 Kiel).
    5. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, vol. 99(2), pages 466-472, May.
    6. Frederic S. Mishkin, 2009. "Is Monetary Policy Effective during Financial Crises?," American Economic Review, American Economic Association, vol. 99(2), pages 573-577, May.
    7. 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 318-340, June.
    8. Jean-Claude Trichet, 2009. "The ECB's Enhanced Credit Support," CESifo Working Paper Series 2833, CESifo.
    9. repec:zbw:rwirep:0135 is not listed on IDEAS
    10. Ansgar Belke & Matthias Goecke & Martin Guenther, 2009. "When Does It Hurt? The Exchange Rate "Pain Threshold" for German Exports," Ruhr Economic Papers 0148, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    11. Claudio Borio & Anna Zabai, 2018. "Unconventional monetary policies: a re-appraisal," Chapters, in: Peter Conti-Brown & Rosa M. Lastra (ed.), Research Handbook on Central Banking, chapter 20, pages 398-444, Edward Elgar Publishing.
    12. 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.
    13. Charles Goodhart, 2009. "The Interest Rate Conditioning Assumption," International Journal of Central Banking, International Journal of Central Banking, vol. 5(2), pages 85-108, June.
    14. Ansgar Belke & Andreas Rees, 2009. "The Importance of Global Shocks for National Policy Makers - Rising Challenges for Central Banks," Ruhr Economic Papers 0135, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    15. Carlo Cottarelli & José Vinãls, 2009. "A Strategy for Renormalizing Fiscal and Monetary Policies in Advanced Economies," IMF Staff Position Notes 2009/22, International Monetary Fund.
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    18. Jürgen von Hagen, 2009. "The monetary mechanics of the crisis," Bruegel Policy Contributions 320, Bruegel.
    19. Gauti B. Eggertsson & Michael Woodford, 2003. "The Zero Bound on Interest Rates and Optimal Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 139-235.
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    Cited by:

    1. Andreea Andries, 2012. "Justification and Implementation of Exit Strategies in the Context of the Current Crisis," EuroEconomica, Danubius University of Galati, issue 2(31), pages 5-13, May.
    2. Marco Passarella, 2013. "Financial Integration in the European Union: an Analysis of ECB’s role," Working papers wpaper04, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    3. Treu, Johannes, 2010. "Anmerkungen zur möglichen geldpolitischen Exit-Strategie der EZB," Wirtschaftswissenschaftliche Diskussionspapiere 04/2010, University of Greifswald, Faculty of Law and Economics.

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    Keywords

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    JEL classification:

    • 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
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • 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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