Where does the money go? Monetary policy, central banks and... - PowerPoint PPT Presentation

Where does the money go? Monetary policy, central banks and... ideology Jens van ‘t Klooster (KU Leuven and University of Amsterdam)

Talk • What is monetary policy? • What happened after 2008? • What is the alternative? Big question: Where does the money go?

What is monetary policy?

What is money? 1. Money as a unit of account (€, $ etc) 2. Money as a means of payment • Public money (Cash, central bank deposits) • Private credit money (Bank deposits, etc)

Public or private? Private credit money Circulated by banks guided by profit motive Public money Circulated by central banks as a part of economic policy -> public control

Monetary policy since the 1980s Independent central bank • 1 Goal: Price stability • 1 Instrument: Interest rate to steer volume of private credit money • Transmission via banks

Where does the money go?

Monetary policy after 2008

Exploding central bank balance sheets 1000 5,000.00 5,000 900 4,500.00 4,500 800 4,000.00 700 4,000 600 3,500.00 3,500 500 3,000.00 3,000 400 2,500.00 2,500 300 2,000.00 2,000 200 100 1,500.00 1,500 0 1,000.00 1,000 2000-12 2002-02 2003-04 2004-06 2005-08 2006-10 2007-12 2009-02 2010-04 2011-06 2012-08 2013-10 2014-12 2016-02 2017-04 2018-06 2019-08 500 500.00 0 0.00 Foreign currency investments Year200020022004200620082010201220142016 Conventional monetary policy USD Securities held outright Conventional monetary policy CFH Securities Held Outright Conventional monetary policy Outright purchases CFH Conventional credit to banks Foreign currency reserves Precious metals Support for Specific Institutions Precious metals Other Other Other

Where does the money go?

Unconventional monetary policy Purchasing securities from • Firms • Governments • Etc Objectives • Price stability • Supporting specific markets • Supporting government finance • Profit

Market neutrality Central banks follow rather than shape the market For example, they • Buy from a whole index (S&P 500; Nikkei 225) • Buy all corporate bonds in the market • Government bond purchases in accordance with strict ECB capital key

ECB CSPP programme (Matikainen, Campiglio and Zenghelis 2017)

Bank of England Corporate Bond Purchases (Matikainen, Campiglio and Zenghelis 2017)

Pandemic Emergency Purchase Programme ECB announces that it will revise “self- imposed limits” if they “hamper action that the ECB is required to take in order to fulfil its mandate”

And now?

Democratising central banks Today: • Independence • Limited coordination with governments Future: • Democratic central banking

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