A lecture in euro area money markets
Paul Mercier, principal adviser at the ECB, has summarized the basics and recent history of euro area money markets. His tale emphasizes what investors...
Term premia in the times of “lift-off”
Equilibrium models suggest that as long as the policy rate is firmly near zero, the term premium on longer-dated yields is compressed by a...
Understanding the ECB’s latest tool: TLTROs
On 5 June 2014 the European Central Bank announced Targeted Long-Term Repo Operations (TLTROs]. Their main purpose is to stimulate bank lending to non-financial...
Why and when “equity duration” matters
A new HSBC report suggests that if and when Quantitative Easing is being reversed it could be a watershed event for sectoral equity performance....
Understanding the U.S. monetary policy framework
A new staff paper summarizes the Federal Reserve’s policy framework, as it evolved in the face of the zero lower bound for interest rates....
Understanding ECB forward guidance
ECB forward (policy rate) guidance has the declared intent to communicate the Governing Council's reaction function and its assessment of the economy. It is...
U.S. Fed “tapering”: The basics in the FOMC’s own words
Envisaged Fed tapering is simply predicated on five principles: (a) balance sheet expansion will slow and ultimately cease if unemployment declines on a sustained...
How to hike U.S. federal funds rates in a glut of...
Asset purchase programs have left the U.S. banking system with USD2.9 trn in (mostly excess) reserves. Raising the target federal funds rate in this...
A brief history of monetary policy and asset price booms
A new NBER paper reminds us of historical episodes when loose monetary policy contributed to asset price booms and busts. The paper also provides...
The “de-anchoring” of inflation in the euro area
Two recent empirical studies highlight the risk that inflation expectations in the euro area are becoming de-anchored, similar to Japan. De-anchoring means that short-term price...
RECENT ARTICLES
The power of macro trends in rates markets
Broad macroeconomic trends, such as inflation, economic growth, and credit creation are critical factors of shifts in monetary policy. Above-target trends support monetary tightening....
Six ways to estimate realized volatility
Asset return volatility is typically calculated as (annualized) standard deviation of returns over a sequence of periods, usually daily from close to close. However,...
Duration volatility risk premia
Duration volatility risk premium means compensation for bearing return volatility risk of an interest rate swap (IRS) contract. It is the scaled difference between...