Conference Agenda

 
 
Session Overview
Session
ECB: The Risks of Soaring Inflation and Policy Rate Hikes
Time:
Friday, 18/Aug/2023:
10:30am - 12:00pm

Session Chair: Angela Maddaloni, European Central Bank
Location: Auditorium (floor 1)


Presentations
ID: 352

(In)dependent Central Banks

Vasso Ioannidou1, Sotirios Kokas2, Thomas Lambert3, Alexander Michaelides4

1Bayes Business School and CEPR; 2University of Essex; 3Rotterdam School of Management, Erasmus University, Netherlands, The; 4Imperial College London and CEPR

Discussant: Alberto Manconi (Bocconi University)

Since the 1980s many countries have reformed the institutional framework governing their central banks to increase operational independence. Collecting systematic biographical information, international press coverage, and independent expert opinions, we find that over the same period appointments of central bank governors have become more politically motivated, especially after significant legislative reforms aiming to insulate central banks and their governors from political interference. We also show that politically-motivated appointments reflect lower de facto independence, and are associated with worse inflation and financial stability outcomes. Given the increase in central banks' powers worldwide, our findings inform the debate about their political accountability and credibility.

EFA2023_352_ECB_1_(In)dependent Central Banks.pdf


ID: 1612

Liquidity Dependence: Why Shrinking Central Bank Balance Sheets is an Uphill Task

Sascha Steffen3, Viral Acharya1, Rahul Chauhan2, Raghuram Rajan3

1NYU Stern School of Business; 2University of Chicago Booth School of Business; 3Frankfurt School of Finance & Management

Discussant: Diana Bonfim (Banco de Portugal)

When the Federal Reserve (Fed) expanded its balance sheet via quantitative easing (QE), commercial banks financed reserve holdings with deposits and reduced their average maturity. They also issued lines of credit to corporations. However, when the Fed halted its balance-sheet expansion in 2014 and even reversed it during quantitative tightening (QT) starting in 2017, there was no commensurate shrinkage of these claims on liquidity. Consequently, the past expansion of the Fed’s balance sheet appears to have left the financial sector more sensitive to potential liquidity shocks when the Fed started shrinking its balance sheet, necessitating Fed liquidity provision in September 2019 and again in March 2020. The banks most exposed to liquidity claims suffered the most drawdowns and the largest stock price declines in March 2020. This evidence suggests that the shrinkage of central bank balance sheets must be handled with utmost care as it may involve tradeoffs between monetary policy and financial stability.

EFA2023_1612_ECB_2_Liquidity Dependence.pdf


ID: 764

Money Markets and Bank Lending: Evidence from the Tiering Adoption

Altavilla Carlo2, Miguel Boucinha2, Lorenzo Burlon2, Mariassunta Giannetti1, Julian Schumacher2

1Stockholm School of Economics, Sweden; 2European Central Bank

Discussant: Pinar Uysal (Federal Reserve Board)

Exploiting the introduction of the ECB’s tiering system for remunerating excess reserve holdings, we document the importance of money market access for bank lending. We show that the two-tier system produced positive wealth effects for banks with excess reserves and encouraged banks with unused exemptions to increase their participation in the money market to obtain liquidity. This ultimately decreased money market fragmentation and enhanced the transmission of monetary policy. We provide evidence that stronger money market relationships reduce the precautionary behavior of financially constrained banks with unused allowances, which consequently extend more credit than other banks, including those with excess liquidity whose valuations increased the most.

EFA2023_764_ECB_3_Money Markets and Bank Lending.pdf