Monetary policy

Excess liquidity in the euro area has risen by less than the liquidity created by unconventional monetary policy measures. This is because much liquidity has been absorbed by non-monetary deposit accounts held by national central banks. As monetary policy normalises, liquidity will become scarcer. At what point this scarcity will cause interbank rates to drift above the deposit facility rate will depend on whether this “autonomous” demand remains high.

At its meeting of 13 December 2018, the ECB Governing Council confirmed that it would stop the net asset purchase programme begun in late 2014 at the end of this year. Quantitative easing nonetheless remains in place: it depends primarily on the stock of assets held by the Eurosystem rather than on the flow of purchases. This stock will remain unchanged for as long as the Eurosystem continues to reinvest the proceeds from maturing securities.

Women are underrepresented in central bank governance. In 2018, only 11 out of 173 central banks are headed by a woman. The ethical case for gender rebalancing in central bank governance is a sufficient reason alone, but we could go further and provokingly ask whether women have a different leaning to monetary policy objectives than men? An investigation of former and present US Fed policymakers suggests that this is not necessarily the case.

What role does the international environment play in shaping US monetary policy decisions? To measure its influence, we construct an international indicator extracted from minutes of Fed monetary policy committee meetings. In a Taylor rule model, we show that the indicator has a significant and negative impact on the fed funds rate. Discussions centred more on the international environment may thus be associated with greater monetary policy easing.