Documents Demertzis, Maria 14 results

"The new European Commission has taken shape during a period of significant geopolitical unrest. Russia's war of aggression against Ukraine approaches its third year with no signs of abating as Russia continues to build its arsenal with assistance from North Korea. The United States prepares for the inauguration of President-elect Donald Trump, ushering in a new era of uncertainty in the transatlantic relationship with worries about tariff threats and questionable security commitments. In the European Union, numerous challenges await the Commission from the rising cost of living and housing shortages to ensuring more clean energy and migration management. These challenges are further compounded by broader environmental, security and economic shifts. In this Forum, our authors look at some of the priorities for the European Commission for 2024-2029 and beyond. How can the EU prepare itself for the uncertainty of a possible global trade war? What should the EU do about its Eastern Neighborhood expansion plans that have continued to stall? How can industrial policy help to create a Single Market for defence goods? What should be the priorities of the Commission with regards to the financial sector? This Forum examines these questions deeply and offers recommendations."

"This paper applies the info-gap approach to the unconventional monetary policy of the Eurosystem and so takes into account the fundamental uncertainty on inflation shocks and the transmission mechanism. The outcomes show that a more demanding monetary strategy, in terms of lower tolerance for output and inflation gaps, entails less robustness against uncertainty, particularly if financial variables are taken into account.
Augmenting the Taylor rule with a financial variable leads to a smaller loss of robustness than taking into account the effect of financial imbalances on the economy. However, in some situations, the augmented model is more robust than the baseline model. A conclusion from our framework is that including financial imbalances in the monetary policy objective does not necessarily increase policy robustness, and may even decrease it."

"How does monetary policy impact upon macroprudential regulation? This paper models monetary policy's transmission to bank risk taking, and its interaction with a regulator's optimization problem.

The regulator uses its macroprudential tool, a leverage ratio, to maintain financial stability, while taking account of the impact on credit provision. A change in the monetary policy rate tilts the regulator's entire trade-off. The authors show that the regulator allows interest rate changes to partly “pass through” to bank soundness by not neutralizing the risk-taking channel of monetary policy. Thus, monetary policy affects financial stability, even in the presence of macroprudential regulation."

"The COVID-19 pandemic represents a major shock to the global and European economy. Most European countries need to take bold quarantine and lock-down measures, as has been done in Italy, to prevent an explosion of the epidemic which would lead to many deaths and the collapse of healthcare systems.

The economic consequences of such measures are major, and are felt through both supply and demand-side channels.

A coordinated and bold response by authorities is necessary:

Ample national funds need to be provided to national health services.
Targeted measures to support individuals (such as the self-employed), companies and the local communities most affected should be put in place or reinforced.
Broad macroeconomic insurance needs to be provided because targeted measures will not cover the many second-round effects of the shock. To alleviate financial and cash-flow constraints, and to provide incentives to preserve employment, we recommend all EU member states agree to halve companies' social security contributions for three months, or cut the payroll tax. Such measures could amount to support of some 2.5 percent of GDP and would be funded by increased national deficits.
The European Central Bank should provide abundant liquidity, increase swap lines to ensure sufficient dollar liquidity and increase its sovereign-bond purchase programme to prevent distress in sovereign bond markets.
‘Whatever it takes' needs to be the motto to preserve lives and reduce the impact on the economy of the epidemic."

"The COVID-19 crisis has compounded the uncertainty that has come to characterise the European economy. We explore how this uncertainty manifests itself in terms of ECB decision-making and the long-run challenges the ECB faces. Confidence in ECB actions will come from the contingency scenarios it considers and communicates on, and from the adoption of potential policies for a wide range of such scenarios. Greater clarity around the ECB's inflation target and surrounding tolerance bands would also be beneficial. This document was provided by the Policy Department for Economic, Scientific and Quality of Life Policies at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 19 November 2020."