The asymmetric relationship between oil prices and activity in the EMU: Does the ECB monetary policy play a role?

Monetary policy is usually perceived as an important transmission channel in the negative relationship between oil prices and economic performance. It may also constitute a short-term explanation of the non-linearity in this relationship, since Central Bankers may be more sensitive to the potential inflationary threats entailed by high oil price increases than to small increases or decreases. In this paper, we use an extended Taylor rule to investigate the role of oil prices in the ECB monetary policy strategy. A contemporaneous reaction function is estimated using both a GMM framework and an Ordered Probit model, and several oil indicators are constructed and tested. The main results suggest that oil prices play a key role in the ECB interest-rate setting, since it appears as a relevant indicator of future inflation. However, the ECB seems to react asymmetrically: only oil price increases influence its decision setting, not oil prices decreases. Monetary policy may thus transmit and amplify the asymmetry in the relationship between oil prices and activity in the euro area. Further investigations suggest that a preference for price stability provides an important explanation of this asymmetric behaviour of the ECB.Oil prices ; Monetary policy ; Taylor rule ; Asymmetry ; ECB.

The asymmetric relationship between oil prices and activity in the EMU: Does the ECB monetary policy play a role?

Monetary policy is usually perceived as an important transmission channel in the negative relationship between oil prices and economic performance. It may also constitute a short-term explanation of the non-linearity in this relationship, since Central Bankers may be more sensitive to the potential inflationary threats entailed by high oil price increases than to small increases or decreases. In this paper, we use an extended Taylor rule to investigate the role of oil prices in the ECB monetary policy strategy. A contemporaneous reaction function is estimated using both a GMM framework and an Ordered Probit model, and several oil indicators are constructed and tested. The main results suggest that oil prices play a key role in the ECB interest-rate setting, since it appears as a relevant indicator of future inflation. However, the ECB seems to react asymmetrically: only oil price increases influence its decision setting, not oil prices decreases. Monetary policy may thus transmit and amplify the asymmetry in the relationship between oil prices and activity in the euro area. Further investigations suggest that a preference for price stability provides an important explanation of this asymmetric behaviour of the ECB

The asymmetric relationship between oil prices and activity in the EMU: Does the ECB monetary policy play a role?

Monetary policy is usually perceived as an important transmission channel in the negative relationship between oil prices and economic performance. It may also constitute a short-term explanation of the non-linearity in this relationship, since Central Bankers may be more sensitive to the potential inflationary threats entailed by high oil price increases than to small increases or decreases. In this paper, we use an extended Taylor rule to investigate the role of oil prices in the ECB monetary policy strategy. A contemporaneous reaction function is estimated using both a GMM framework and an Ordered Probit model, and several oil indicators are constructed and tested. The main results suggest that oil prices play a key role in the ECB interest-rate setting, since it appears as a relevant indicator of future inflation. However, the ECB seems to react asymmetrically: only oil price increases influence its decision setting, not oil prices decreases. Monetary policy may thus transmit and amplify the asymmetry in the relationship between oil prices and activity in the euro area. Further investigations suggest that a preference for price stability provides an important explanation of this asymmetric behaviour of the ECB

Les vingt ans de la banque centrale européenne. Un bilan contrasté.

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L’impact du risque individuel dans l’explication des écarts de taux d’intérêt au sein de la zone euro

International audienceNous revenons dans cet article sur l’épisode inédit de divergence des taux d’intérêt sur la dette publique au sein de la zone euro entre 2008 et 2012. Pour la première fois depuis la création de l’Union Economique et Monétaire (UEM), les marchés financiers ont discriminé les États membres en attribuant des primes de risque différentes sur les dettes publiques de long terme. Ce phénomène a révélé une certaine hétérogénéité de l’UEM. La Banque centrale européenne est parvenue à mettre un terme à cette dérive et à préserver l’intégrité de la zone euro grâce au programme d’Opérations Monétaires sur Titres annoncé en août 2012. A partir d’une revue de la littérature et d’une analyse empirique, nous démontrons dans cet article que les facteurs spécifiques jouent un rôle crucial dans l’explication des écarts de taux d’intérêt. L’insoutenabilité des finances publiques et une compétitivité dégradée semblent justifier l’envolée des taux obligataires pendant la crise

La Théorie Monétaire Moderne : idées fausses, vraies limites et angles morts. Un tour d’horizon des critiques

International audienceSince the great financial crisis, the Modern Monetary Theory (MMT) rouses interests in political, media and academic area. In the ensuing Keynesian moment, the MMT has emerged from the confidentiality to advocate a permanent fiscal dominance in opposition to the consensus built toward a politically independent monetary policy. MMT has however been widely criticised by mainstream economists but also by the post-keynesian school from which it comes. The most vehement attacks to deny the scientific nature of the theory and to confine it to a political movement belonging to the left wing of the US democrats. More sophisticated critics tackle theorical foundation and empirical evidences of the MMT to contest their recommendations. This paper provides an overview of those critical points of view and contributes to the chorus of criticism by raising a failing political economy.Depuis la grande crise financière, la Théorie Moderne de la Monnaie (TMM) suscite l’intérêt des milieux politique, médiatique et académique. Le « moment » keynésien qui a suivi cette crise a sorti d’une relative confidentialité ce courant de pensée qui défend un retour permanent de la dominance budgétaire à rebours du consensus autour d’une politique monétaire indépendante du pouvoir politique. Toutefois, la TMM fait l’objet de vives attaques de la part d’économistes dits de l’offre, de la synthèse voire même post-keynésiens dont la TMM est pourtant réputée proche. Les points de vue les plus virulents contestent le caractère scientifique de la TMM et la réduisent à un mouvement politique assimilable à l’aile radicale du parti démocrate américain. D’autres critiques plus élaborées s’attellent à démontrer les limites théoriques et empiriques des préconisations de la TMM. Cet article propose une synthèse des critiques adressées à la TMM et apporte une contribution en questionnant l’économie politique de la théorie

How does the European Central Bank react to oil prices?

International audienceMonetary policy may constitute a short-term explanation of the non-linearity in the relationship between oil prices and output. The role of oil prices in the ECB reaction is thus investigated with an extended Taylor rule including several oil prices indicators

The role of oil prices in monetary policy rules: evidence from 4 major central banks

International audienceRecent movements in oil prices on international markets have generated many comments on the role that oil prices may play for Central Banks of oil-importing countries, oil price shocks being interpreted as supply shocks leading to higher inflation rates and lower economic growth. In this paper, we examine the role played by oil prices in the monetary policy strategy of 4 major Central Banks: the U.S. Federal Reserve, the ECB, the Bank of Canada and the Bank of England. Using an Ordered Probit model, we assess the reaction of each Central Bank to oil price changes and investigate a potential asymmetric response to oil price increases and decreases. Our results suggest that the role of oil price for Central Bankers may be very different depending on the objectives and the strategy of each Central Bank regarding inflation and output stabilization

The role of oil prices in monetary policy rules: evidence from 4 major central banks

International audienceRecent movements in oil prices on international markets have generated many comments on the role that oil prices may play for Central Banks of oil-importing countries, oil price shocks being interpreted as supply shocks leading to higher inflation rates and lower economic growth. In this paper, we examine the role played by oil prices in the monetary policy strategy of 4 major Central Banks: the U.S. Federal Reserve, the ECB, the Bank of Canada and the Bank of England. Using an Ordered Probit model, we assess the reaction of each Central Bank to oil price changes and investigate a potential asymmetric response to oil price increases and decreases. Our results suggest that the role of oil price for Central Bankers may be very different depending on the objectives and the strategy of each Central Bank regarding inflation and output stabilization