Financial Stability News

Flashing news about financial stability and central banking

Tag Archives: ZIRP

The impact of persistent negative interest rates

This post gives a good review of the issues and consequences of pesistent Negative Interest Rate Policy (NIRP)

The NIRP acronym is misleading, however, because unlike ZIRP, NIRP isn’t actually an official “policy” per se, but rather a symptom of a broken financial system increasingly starved for good ‘collateral’.

This phenomena, thought by many to be of short duration, is now having its impact on investors, especially insurance companies and pension funds.

The impact is felt only gradually, but will get worse if NIRP continues. Together with the crisis in the real economy, this dosn’t look good.

Reading today

Mark Carney: A monetary policy framework for all seasons 

Al Gore: A Manifesto for Sustainable Capitalism

South Korea posts rare current account deficit : Exports to Europe fell 38 percent in January year-on-year compared to a 20 percent fall in December.

Evaluating the Impact of Fair Value Accounting on Financial Institutions: Implications for Accounting Standards Setting and Bank Supervision

The overall conclusion based on the evidence presented is that implementing fair value accounting more broadly may not necessarily provide financial statement users with more transparent and useful reporting.

Ben Bernanke and the zero bound

Very interesting NBER paper by Ball

 

 

Bernanke on the dual mandate

Chairman Bernanke was responding to questions in the Senate Banking Committee today. Most of the Q&A were on fiscal matters, especially on the need for budget consolidating in the medium term, including the big three entitlement programs Medicaid, Medicare, and Social Security.

Federal Reserve Chairman Ben Bernanke urged senators to resolve differences over payroll tax cuts that expire this month saying uncertainty could slow the economy down. He testified before the Senate Budget Committee on the U.S. economic outlook for this year. Chairman Bernanke told the committee that the labor market still has a “long way to go” and unemployment levels remain “troubling.”

At around 1:27 Bernanke gives some interesting reflections on the dual mandate and the ongoing policy of quantitative easing.

At around 1:40 he gives a strong defense for the ZIRP policy and oppose the recent views from Charles Swab in WSJ and Bill Gross of PIMCO in FT

Throughout, many senators commended Bernanke on his new policy of increased transparency, including the posting of an inflation target.