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Central bank communication at times of non-standard monetary policies

28-09-2018

For the Monetary Dialogue session which took place on 24 September 2018, monetary experts analysed the issues related to the central bank communication at times of non-standard monetary policy. This note, provided by Policy department A, gives an overview of the in-depth analyses prepared by the experts.

For the Monetary Dialogue session which took place on 24 September 2018, monetary experts analysed the issues related to the central bank communication at times of non-standard monetary policy. This note, provided by Policy department A, gives an overview of the in-depth analyses prepared by the experts.

European Market Infrastructure Regulation

10-01-2018

This note seeks to provide an initial analysis of the strengths and weaknesses of the European Commission's impact assessment (IA) accompanying its proposal above, submitted on 13 June 2017 and referred to Parliament's Committee on Economic and Monetary Affairs (ECON). This proposal amends the European Market Infrastructure Regulation (EMIR), which is already in the process of being amended by two proposals currently under consideration in Parliament. The first proposal focused on the recovery and ...

This note seeks to provide an initial analysis of the strengths and weaknesses of the European Commission's impact assessment (IA) accompanying its proposal above, submitted on 13 June 2017 and referred to Parliament's Committee on Economic and Monetary Affairs (ECON). This proposal amends the European Market Infrastructure Regulation (EMIR), which is already in the process of being amended by two proposals currently under consideration in Parliament. The first proposal focused on the recovery and resolution of central counterparties (CCPs). The second proposal proposed targeted amendments aiming to meet EMIR objectives in a more effective and efficient way. The current initiative under consideration focuses on the authorisation of CCPs and on the recognition of third-country CCPs. The impact assessment clearly identifies the problems that require EU action, as well as their drivers and consequences. The objectives of the initiative appear to be coherent with the analysis, and are relevant and measurable. The IA analyses a limited number of alternatives to the status quo in depth: two for each of the objectives, which deal respectively with EU and third-country central counterparties. These options are phrased in rather general terms and are left open to further development. The analysis is based on relevant sources and the Commission's expert knowledge in the field. However, the IA appears to have been prepared in a rather limited time-span and could have benefited from further work.

TARGET imbalances at record levels: Should we worry?

15-11-2017

TARGET is the payments system for making settlements between euro area economies and five other EU economies. Cross-border transactions generate claims/surpluses and liabilities/deficits among national central banks which “net out” for the system as a whole. These imbalances are manageable in relative terms, but look large in absolute terms. None are larger than one third of their corresponding public debt ratios; and despite a big build up in the 2010-13 period, the imbalances now appear to be on ...

TARGET is the payments system for making settlements between euro area economies and five other EU economies. Cross-border transactions generate claims/surpluses and liabilities/deficits among national central banks which “net out” for the system as a whole. These imbalances are manageable in relative terms, but look large in absolute terms. None are larger than one third of their corresponding public debt ratios; and despite a big build up in the 2010-13 period, the imbalances now appear to be on a non-expanding cyclical path. The implications for the EU economies and their policymakers are less easy. The main drivers, beyond the need to fund persistent current account deficits or surpluses, are the use of different funding sources (some outside the euro area), internal and external portfolio re-balancing, loose monetary policy and exchange rate risks. TARGET imbalances support quantitative easing, but are not driven by it. The main threats are the divergence that interrupts further economic integration; and the increasing liabilities taken on by the ECB since 2015. That said, self-correcting mechanisms are weak which makes symmetric adjustments by both creditor and debtor countries essential (because of the adding up constraint); and the difficulty that the imbalances cannot always be eliminated simply by balancing current accounts around the system.

Išorės autorius

Andrew HUGHES HALLETT

TARGET (im)balances at record level: Should we worry?

15-11-2017

LAccording to the ECB, the recent rise in TARGET 2 balances could be seen as the result of the decentralised implementation of the extended asset purchase programme (APP). The programme entails cross-border payments by the purchasing NCBs, with around 50% of involved counterparties resident outside the euro area, including the UK. These counterparties access the TARGET system via a limited number of financial centres, particularly Germany and, to a lesser extent, the Netherlands. According to the ...

LAccording to the ECB, the recent rise in TARGET 2 balances could be seen as the result of the decentralised implementation of the extended asset purchase programme (APP). The programme entails cross-border payments by the purchasing NCBs, with around 50% of involved counterparties resident outside the euro area, including the UK. These counterparties access the TARGET system via a limited number of financial centres, particularly Germany and, to a lesser extent, the Netherlands. According to the ECB, the increase in TARGET balances stemming from the concentration of cross border flows due to APP transactions would reflect technical features of the euro-area financial structure rather than evidence of financial stress. However, these imbalances recently may be well indicative of a persistent fragmentation within the euro area’s financial markets as well as uneven liquidity allocation; the risks of which may be understated. Against this background, the paper discusses what the underlying factors behind the recent rise of TARGET2 (im)balances are, and the risks associated to rising Target (im)balances for the ECB’s monetary policy.

Išorės autorius

Paul DE GRAUWE, Yuemei JI, Corrado MACCHIARELLI

Should we be concerned about TARGET balances?

15-11-2017

This document was provided to Policy Department A at the request of the Economic and Monetary Affairs Committee. The paper describes how the Eurosystem’s processing of cross-border banking transactions via its TARGET2 payments system produces a set of assets and liability items on the balance sheets of national central banks. The factors determining the evolution of TARGET-related balances are discussed and the risks associated with these balances are addressed.

This document was provided to Policy Department A at the request of the Economic and Monetary Affairs Committee. The paper describes how the Eurosystem’s processing of cross-border banking transactions via its TARGET2 payments system produces a set of assets and liability items on the balance sheets of national central banks. The factors determining the evolution of TARGET-related balances are discussed and the risks associated with these balances are addressed.

Išorės autorius

Karl WHELAN, University College Dublin

TARGET imbalances at record levels: Should we worry?

15-11-2017

The imbalances within the Eurosystem’s Target 2 payment system are an indication that financial markets are not fully integrated. However, the increase in these imbalances in the wake of the large asset purchases (often called QE, for quantitative easing) that started in early 2015, should not be a particular cause for concern. The imbalances had declined until the start of QE, accompanied by a reduction in risk premia. QE was associated with a further reduction in financial stress. There is thus ...

The imbalances within the Eurosystem’s Target 2 payment system are an indication that financial markets are not fully integrated. However, the increase in these imbalances in the wake of the large asset purchases (often called QE, for quantitative easing) that started in early 2015, should not be a particular cause for concern. The imbalances had declined until the start of QE, accompanied by a reduction in risk premia. QE was associated with a further reduction in financial stress. There is thus little reason to believe that the increase since 2015 reflects renewed fears about a euro break-up. The ‘technical’ nature of the increasing imbalances in the wake of QE is illustrated by the fact that the European Central Bank (the central institution of the Eurosystem) has also run up a negative Target balance of over €200 billion. No one would argue that this is motivated by a fear of a break-up of the euro area. There are reasons to believe that the recent run-up in the negative balances of Italy and Spain is due to similarly technical reasons.

Išorės autorius

Daniel GROS, CEPS

TARGET (im-)balances at record level: Should we worry?

15-11-2017

Target2 balances have re-increased since late 2014 in parallel with extraordinary monetary policy measures. At first glance, the ECB’s asset purchasing programme seems to contribute just mechanically to a widening of Target2 positions. However, excessive liquidity provision reduces the role of cross-border interbank markets, which could otherwise reduce Target2 imbalances. Also, other factors like hetero-geneous country risk may also continue to play a role, but are concealed in the current monetary ...

Target2 balances have re-increased since late 2014 in parallel with extraordinary monetary policy measures. At first glance, the ECB’s asset purchasing programme seems to contribute just mechanically to a widening of Target2 positions. However, excessive liquidity provision reduces the role of cross-border interbank markets, which could otherwise reduce Target2 imbalances. Also, other factors like hetero-geneous country risk may also continue to play a role, but are concealed in the current monetary policy environment. After categorising the root causes of Tar-get2 imbalances (current account financing, capital flight, or deposit flight) and the associated risks, we discuss possible reforms that would prevent the build-up of large Target2 imbalances.

Išorės autorius

Salomon Fiedler, Stefan Kooths, Ulrich Stolzenburg (Kiel Institute for the World Economy)

Institutions and Bodies in the Economic and Monetary Union

24-02-2016

This document provides an overview of the main institutions and bodies in charge of economic governance, including banking supervision and resolution, in the Economic and Monetary Union. It focuses on their tasks and composition, as well as on the role played by the European Parliament. The briefing is prepared jointly by Economic Governance Support Unit and the Policy Department A: Economic and Scientific Policies.

This document provides an overview of the main institutions and bodies in charge of economic governance, including banking supervision and resolution, in the Economic and Monetary Union. It focuses on their tasks and composition, as well as on the role played by the European Parliament. The briefing is prepared jointly by Economic Governance Support Unit and the Policy Department A: Economic and Scientific Policies.

Adopting the euro: Convergence criteria and state of play

17-07-2015

Adopting the single currency is the third stage of Economic and Monetary Union (EMU). Even though all Member States participate in EMU, not all of them use the euro: the United Kingdom and Denmark have opted out, while Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania and Sweden are yet to adopt it, being formally obliged to do so under the Maastricht Treaty. Before this happens, they need to fulfil the convergence criteria of price stability, soundness and sustainability of public ...

Adopting the single currency is the third stage of Economic and Monetary Union (EMU). Even though all Member States participate in EMU, not all of them use the euro: the United Kingdom and Denmark have opted out, while Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania and Sweden are yet to adopt it, being formally obliged to do so under the Maastricht Treaty. Before this happens, they need to fulfil the convergence criteria of price stability, soundness and sustainability of public finances, durability of convergence and exchange rate stability. Furthermore, they must align their national legislation with the EU acquis on national central banks. Many argue that during the euro's founding phase the convergence criteria were relaxed in order to enable a wide take-up of the currency. This however is no longer the case, as the Member States which have joined since the euro came into use have had to fulfil the criteria stringently. Bulgaria, the Czech Republic and Sweden fulfil all but one criterion (exchange rate stability) and in fact none of the seven countries have decided to join the relevant currency-pegging mechanism. Furthermore, none except Croatia have made their central bank legislation compatible with the euro area. Public opinion in these countries is divided: a majority in Romania, Hungary, Croatia and Bulgaria is in favour of adopting the euro, while in the other countries most people would vote against it. However, only 18% of all respondents want the single currency to be introduced as soon as possible. Reportedly, most of the non-euro-area Member States cannot be expected to join the euro before 2020.

Public Hearing with Danièle Nouy, Chair of the Single Supervisory Mechanism on 25 June 2015

23-06-2015

This is a note prepared in advance of a regular public hearing as referred to in Regulation 1024/2013 and as in line with the Interinstitutional Agreement between the EP and the ECB.

This is a note prepared in advance of a regular public hearing as referred to in Regulation 1024/2013 and as in line with the Interinstitutional Agreement between the EP and the ECB.

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