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Central banking in turbulent times

Central banks came out of the Great Recession with increased power and responsibilities. Indeed, central banks are often now seen as 'the only game in town', and a place to put innumerable problems vastly exceeding their traditional remit. These new powers do not fit well, however, with the independence of central banks, remote from the democratic control of government.

By: and Date: May 22, 2018 Topic: European Macroeconomics & Governance

This is the introduction of the book, published by Oxford University Press and it is available here.

Central Banking in Turbulent Times examines fundamental questions about the central banking system, asking whether the model of an independent central bank devoted to price stability is the final resting point of a complex development that started centuries ago. It dissects the hypothesis that the Great Recession has prompted a reassessment of that model; a renewed emphasis on financial stability has emerged, possibly vying for first rank in the hierarchy of objectives of central banks.

This raises the risk of dilemmas, since the Great Recession brought into question implicit assumptions that the pursuit of price stability would also lead to financial stability. In addition, the border between monetary and fiscal policy was blurred both in the US and in Europe. Central Banking in Turbulent Times asks whether the model prevailing before the Great Recession has been irrevocably altered. Are we entering, as Charles Goodhart has hypothesized, into the ‘fourth epoch’ of central banking? Are changes to central banks part of a move away from the global liberal order that seemed to have prevailed at the turn of the century? Central Banking in Turbulent Times seeks to answer these questions as it examines how changes can allow for the maintenance of price stability, while adapting to the long-term consequences of the Great Recession.

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Blog Post

Germany’s savings banks: uniquely intertwined with local politics

German savings banks, known as Sparkassen, form an important feature of the country's banking assets. Unlike in other European countries, German Sparkassen also hold direct links with local political communities. This post focuses on the Sparkassen's structural links and relationships with elected politicians. Three findings which do not appear to have been specifically documented previously stand out.

By: Jonas Markgraf and Nicolas Véron Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: July 18, 2018
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Policy Contribution

Cryptocurrencies and monetary policy

Can cryptocurrencies acquire the role of money? And what are the implications for central banks and monetary policy? Read the policy contribution to understand what challenges cryptocurrencies have to overcome to replace official currencies.

By: Grégory Claeys, Maria Demertzis and Konstantinos Efstathiou Topic: Finance & Financial Regulation Date: June 28, 2018
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Blog Post

The European Union must defend Andreas Georgiou

Andreas Georgiou’s case raises disturbing questions about the integrity of European statistical processes. Forceful action by EU authorities on Mr Georgiou’s case is long overdue. The European Union also needs to consider reforming its statistical framework to ensure a similar scandal cannot recur.

By: Nicolas Véron Topic: European Macroeconomics & Governance Date: June 26, 2018
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Working Paper

EU financial services policy since 2007: crisis, responses and prospects

This paper presents a holistic overview and assessment of the European Union (EU)’s financial services policy since the start of its financial crisis in mid-2007. Its emphasis is on public policy initiatives and developments at the European level, including those specific to the euro area.

By: Nicolas Véron Topic: Finance & Financial Regulation Date: June 21, 2018
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Blog Post

Is the ECB collateral framework compromising the safe-asset status of euro-area sovereign bonds?

Central banks’ collateral frameworks play an important role in defining what is considered as a safe asset. However, the ECB’s framework is unsatisfactory because it is overly reliant on pro-cyclical ratings from credit rating agencies, and because the differences in haircuts between the different ECB credit quality steps are not sufficiently gradual. In this note, the authors propose how the ECB could solve these problems and improve its collateral framework to protect its balance sheet without putting at risk the safe status of sovereign bonds of the euro area.

By: Grégory Claeys and Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: June 8, 2018
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Blog Post

Mini-BOT in the government programme of the Five Star Movement and the League

The economic evaluation of mini-BOT very much depends on its specific characteristics. Overall it appears to be a blend of an inferior security and inferior money. More important than its specific characteristics is the message that the implementation of the mini-BOT would send about Ital-exit: inevitably, given what the League and its representatives have said and written, the mini-BOT would be seen as a first step in the exit of Italy from the euro, rekindling denomination risk attached to Italian securities.

By: Francesco Papadia and Alexander Roth Topic: Finance & Financial Regulation Date: June 5, 2018
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Podcast

Podcast

Director's Cut: Central banking and the problem of unelected power

Bruegel director Guntram Wolff discusses current tensions in central banking governance with Paul Tucker, former deputy governor of the Bank of England and author of the newly released book 'Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State'.

By: The Sound of Economics Topic: Finance & Financial Regulation, Global Economics & Governance Date: June 5, 2018
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Blog Post

Italian populism calls for hard choices

The economic agenda of Italian populists is likely to exacerbate rather than alleviate Italy’s longstanding problems. But the piecemeal, small-step approach followed by European and national ruling elites, while perhaps tolerable for countries under normal economic conditions, is insufficient for an Italy stuck in a low-growth-high-debt equilibrium. If defenders of the European project want to regain popularity, they will need to present a clear functioning alternative to setting the house on fire.

By: Alessio Terzi Topic: European Macroeconomics & Governance Date: May 31, 2018
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Past Event

Past Event

Unelected Power: the quest for legitimacy in central banking and the regulatory state

We are pleased to host the presentation of Paul Tucker's latest book.

Speakers: Maria Demertzis, Joanne Kellermann, Jean Pisani-Ferry and Paul Tucker Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 31, 2018
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External Publication

The changing fortunes of central banking

What are the major challenges of central banks today? This book discusses the developing role of central banks and the policies they pursue in seeking monetary and financial stabilisation, while also giving suggestions for model strategies.

By: Philipp Hartmann, Haizhou Huang and Dirk Schoenmaker Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: May 29, 2018
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Opinion

How worried should we be about an Italian debt crisis?

Political backlash to slow growth and immigration has produced the least cooperative government imaginable in Italy, a coalition between the left-populist Five Star Movement (M5S) and the right-populist Lega. And borrowing costs have started to rise in reaction. Does this mean that a crisis is imminent? If so, how bad would it be?

By: Silvia Merler, Olivier Blanchard and Jeromin Zettelmeyer Topic: Finance & Financial Regulation Date: May 28, 2018
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Blog Post

Are SBBS really the safe asset the euro area is looking for?

The European Commission is pushing to create a synthetic euro-area-wide safe asset in the form of sovereign bond-backed securities (SBBS). However, SBBS do not fully fulfil their original promises. If introduced on a massive scale, they might increase the supply of safe assets in good times and loosen the link between sovereigns and banks. But they will not give governments a means to maintain market access during crises, they might change incentives for governments to default, and they could pose a problem to individual bonds not included in SBBS if, in the end, they are put at a regulatory advantage vis-à-vis individual bonds.

By: Grégory Claeys Topic: Finance & Financial Regulation Date: May 28, 2018
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