Download publication

Policy Contribution

A compelling case for Chinese monetary easing

In the midst of the heated monetary policy debate, the People’s Bank of China (PBC) since mid-2014 has no doubt started loosening its monetary policy, initially tentatively and later more forcefully. Is such a policy shift warranted and desirable?

By: Date: April 27, 2015 Topic: Global Economics & Governance

• Chinese monetary policy was excessively tight in 2014 but started loosening in late 2014, in an attempt to cushion growth, facilitate rebalancing, support reform and mitigate financial risk.

• There are three main reasons for this policy shift. First, there is evidence that the Chinese economy has been operating below its potential capacity. Second, among the big five economies, China’s monetary policy stance and broader financial condition both tightened the most in the wake of the global financial crisis, likely weighing on domestic growth. Third, a mix of easy monetary policy and neutral fiscal policy would serve China best at the current juncture, because it would support domestic demand and help with the restructuring of China’s local government debts, while facilitating a move away from the soft dollar peg.

• Such a warranted shift in monetary policy stance faces the challenges of uncertain potential growth, a more liberalised financial system, an evolving monetary policy framework, the legacy of excess leverage and a politicised policy debate.

View comments
Read about event

Upcoming Event

Jan
22
14:00

A conversation with Jin Liqun, president of AIIB

We are pleased to host Jin Liqun, the president of Asian Infrastructure Investment Bank at Bruegel.

Speakers: Sven Biscop, Guntram B. Wolff and Jin Liqun Topic: Finance & Financial Regulation, Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic More by this author

Blog Post

Macroprudential policy: The Maginot line of financial stability

The ability of macroprudential policies to assure financial stability and thus leave central banks free to assign the interest rate tool exclusively to price stability is unproven. As the Maginot line did not protect France from a German invasion in WWII, so macroprudential policy may not be sufficient to counter financial instability. Central banks should prepare to deal with dilemmas in the use of the interest rate.

By: Francesco Papadia Topic: European Macroeconomics & Governance Date: January 17, 2018
Read article More by this author

Opinion

China Fails to Woo U.S. With Financial Sector Opening

China's recent announcement of reforming its financial market has received little enthusiasm from the U.S. despite its potential benefits. The lack of a clear agenda regarding its economic rival has pushed the Trump administration to minor any significant progress of China's reform, and to maintain focus on strategic issues.

By: Alicia García-Herrero Topic: Finance & Financial Regulation, Global Economics & Governance Date: January 5, 2018
Read article More on this topic More by this author

Opinion

Opportunities and risks in Europe in 2018

The new year could very well see the positive story of 2017 continue in Europe – but a number of looming policy and political problems cannot be ignored.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: December 30, 2017
Read article

Opinion

Chinese banks’ improved asset quality cannot hide other phantoms

The recent improvement in asset quality cannot mask other growing concerns in China’s banking sector. Beyond liquidity concerns, other structural issues such as low profitability and insufficient generation of organic capital, are emerging.

By: Alicia García-Herrero and Gary Ng Topic: Finance & Financial Regulation, Global Economics & Governance Date: December 20, 2017
Read article More by this author

Opinion

South Korea needs to watch the BOJ rather than the Fed

Due its actual economic structure, South Korea should be more worried about BOJ's extremely lax stance than about monetary policy normalization by the Fed.

By: Alicia García-Herrero Topic: Finance & Financial Regulation, Global Economics & Governance Date: December 14, 2017
Read article Download PDF

Policy Contribution

European Parliament

How should the European Central Bank ‘normalise’ its monetary policy?

During the crisis, the ECB resorted to a number of unconventional monetary tools. This paper discusses how to phase out these policies and what the ‘new normal’ in monetary policy should look like.

By: Grégory Claeys and Maria Demertzis Topic: European Macroeconomics & Governance, European Parliament, Testimonies Date: November 23, 2017
Read article Download PDF More on this topic

External Publication

Central Asia—twenty-five years after the breakup of the USSR

Central Asia consists of five culturally and ethnically diverse countries that have followed different paths to political and economic transformation in the past 25 years. The main policy challenge for the five Central Asian economies is to move away from commodity-based growth strategies to market-oriented diversification and adoption of a broad spectrum of economic, institutional and political reforms

By: Marek Dabrowski and Uuriintuya Batsaikhan Topic: Global Economics & Governance Date: November 14, 2017
Read article More by this author

Blog Post

European worries about isolationist trends

Populist shocks in the UK and US threaten the multilateral order on which the EU depends. What lies behind these earthquakes, and what does it mean for Europe? Withdrawing from the world is no solution to geo-political upheavals, but Europe needs to reassess the future of globalisation.

By: Maria Demertzis Topic: European Macroeconomics & Governance, Global Economics & Governance Date: November 7, 2017
Read article More on this topic

Blog Post

The Eurosystem - Too opaque and costly?

The Eurosystem gets a lot of attention from academics and the media, but they largely focus on its statutory objective of maintaining price stability. There is much less interest in its transparency and operational efficiency. We analyse these issues, and find that the Eurosystem is less transparent and operates with significantly higher costs and headcount than the US Federal Reserve System.

By: Francesco Papadia and Alexander Roth Topic: European Macroeconomics & Governance Date: November 6, 2017
Read article More on this topic More by this author

Blog Post

Long-term growth potential, or dead in the long run?

By linking growth with both employment and the imperative for India to hold its own with China for strategic autonomy, Prime Minister Modi has brought sustainable, high quality, inclusive economic growth to the centre of political discussion, which is where it rightfully belongs.

By: Suman Bery Topic: Global Economics & Governance Date: October 5, 2017
Read article Download PDF

External Publication

European Parliament

The single monetary policy and its decentralised implementation: An assessment

This paper assesses the decentralised implementation of monetary policy by the Eurosystem in terms of its transparency, efficiency and simplicity. Compared to the Fed, the Eurosystem seems to have higher staff numbers and operational costs for similar tasks.

By: Francesco Papadia and Alexander Roth Topic: European Macroeconomics & Governance, European Parliament, Testimonies Date: October 4, 2017
Load more posts