User:Oceanflynn/sandbox/Ultra-loose monetary policies

Ultra-loose monetary policies (ULMP) are "unconventional measures, such as asset purchases, long-maturity lending and forward guidance about intended future monetary policy actions." "ULMP include "very low or even negative interest rates, large-scale asset purchases, long-maturity lending to banks and forward guidance in central bank communication." There purpose is "to increase inflation and output, to the benefit of financial stability."

History
"Since 2008, all major central banks have engaged in monetary easing through conventional interest rate cuts, and through unconventional measures, such as asset purchases, long-maturity lending and forward guidance about intended future monetary policy actions. We call these unconventional measures ‘ultra-loose monetary policies’ (ULMP). Such measures have increased significantly the size, and changed the composition of, the central banks’ balance sheets."

In the early 2010s, "the too-low and below-target inflation, low inflation expectations, the low level of capital utilisation and the high level of unemployment suggest that the natural rate of interest has been well below the policy rate, which has been constrained by the zero lower bound."

In his paper presented during the July 2014 Monetary Dialogue discussions in the Economic and Monetary Affairs Committee (ECON) of the European Parliament, Grégory Claeys, a Research Fellow at Bruegel, a international economic policy think tank based in Brussels, recommended that the European Central Bank (ECB) "implement a large-scale asset-purchase programme". Claeys made "recommendations about the design of such a programme." Claeys contrasted the way in which EU, the US and the UK responsed to the Financial crisis of 2007–2008. The ECB "adopted measures that were mainly directed at ensuring the provision of liquidity and repairing the bank-lending channel, through changes to its usual framework for the implementation of monetary policy. By contrast, the United States Federal Reserve and the Bank of England quickly pursued unconventional monetary policies by implementing quantitative easing programmes that appeared to have a positive impact on financial variables and also on the real economy."

Claeys described how, "The Federal Reserve (Fed) and the Bank of England chose a more radical and unconventional path in terms of monetary policy when they decided very quickly to implement large-scale asset-purchases programmes as their main response to the crisis. The sizes of these programmes were very significant (grossly equivalent to 20-25% of GDP) and, although it is very difficult to estimate their impact, there is a broad consensus in the literature that those measures had a positive impact on financial variables and also on GDP and inflation in the US and the UK."

In December 2015, the Bank of Canada updated their framework for unconventional monetary policy measures.

In 2015 "Financial leaders from the world’s 20 biggest economies agreed over the weekend to step up efforts to increase growth, saying reliance on ultra-low interest rates would not be enough to accelerate economic expansion. But they also said they were confident that growth would pick up and, as a result, interest rates in “some advanced economies” — code for the United States — would have to rise....“We heard different opinions on the possible Fed decision,” Deputy Prime Minister Cevdet Yilmaz of Turkey said at a news conference. “Some think the Fed needs to make a decision sooner rather than later, while others think it should delay....To limit the volatility of capital flows from emerging economies into dollars — the reason for concern about a Federal Reserve rate increase — Group of 20 financial leaders said they would avoid any surprise or excessive moves. “We will carefully calibrate and clearly communicate our actions, especially against the backdrop of major monetary and other policy decisions, to minimize negative spillovers, mitigate uncertainty and promote transparency,” they said."

In September 2016 European Central Bank (ECB) President Mario Draghi, an Italian central banker, faced "tough questions from German lawmakers" about the ECB’s "ultra-loose monetary policy, just as the ECB is considering even more stimulus to revive inflation. Relations have cooled between Europe’s largest economy and the euro zone’s central bank, which has cut interest rates aggressively in recent years and pumped more than a trillion euros into the economy through asset purchases." "[W]ith growth in the 19-member euro zone still mediocre and inflation barely above zero - well short of the ECB’s target of nearly 2 percent - the bank’s critics say its monetary policy has reached its limits...Gunther Krichbaum, the head of the European affairs committee who invited Draghi to Berlin, "said that the ECB’s monetary policy was actually like an invisible bailout for the indebted countries of southern Europe and that this was never authorised by parliaments."

DEC. 8, 2017 "However, the strong headline GDP numbers masked the continuing pains policymakers face in seeking to boost consumer spending through their ultra-loose monetary policy...Still, the data comes amid the strongest signals yet Bank of Japan Governor Haruhiko Kuroda could shift monetary policy away from its ultra-accommodative settings and allow rates to rise as the economy improves...The government agreed earlier on Friday a spending package to subsidise education and encourage more corporate investment, which could support further growth."

"The Bank of Japan does not plan to change its massive stimulus programme and will “immediately act” if risks to the economy undermines the momentum toward achieving its inflation target, central bank Governor Haruhiko Kuroda said on Monday."...Asked if he has become more worried about the demerits of ultra-loose policy, Kuroda said the BOJ had not changed its message since revamping its policy framework last September. The BOJ changed its strategy by revamping its framework last September, when it noted the yield curve had became “too flat” and wasn’t good for the banking system, Kuroda said...The BOJ revamped its policy framework last September to one targeting interest rates from the pace of asset purchases after three years of heavy money printing failed to fire up inflation to its 2 percent target. It now guides short-term interest rates at minus 0.1 percent and the 10-year government bond yield around zero percent."

Aims
"The main reason for these various unconventional policies and low interest rates is that central banks try to set interest rates at, or around the so-called 'natural rate' of interest, a level consistent with low and stable inflation and with an economy near its potential."

Risks
Ultra-loose monetary policies "pose various risks and might create challenges for financial institutions."

Criticisms
In September 2016, Germany's Finance Minister Wolfgang Schaeuble, "has repeatedly said interest rates are too low and a cause of serious concern because they are eroding pensioners' savings and hurting banks' profit margins." In the spring of 2016, Schaeuble "blamed the ECB’s policies for the rise of the right-wing Alternative for Germany (AfD) which was founded in 2013 to oppose euro zone bailouts and has since morphed into an anti-immigration party." According to an article in "staunchly conservative FAZ in September 2016, Schaeuble said, "We’ll only be able to leave this low-interest phase behind us if we have more sustainable growth in Europe...We won’t achieve this if we continue to walk on old paths with new money, but only if we change course." Schaeuble "called on euro zone governments to do their part by boosting growth through structural reforms, which would help the ECB to start phasing out its ultra-loose monetary policy."

On October 11, 2014 Raghuram Rajan who represented the Bangladesh, Bhutan, India and Sri Lanka made a statement to the International Monetary and Financial Committee.

""Global growth is recovering, but hesitatingly. Even as the US economy has performed better than expected, the recovery in the Euro area remains extremely fragile. Investment remains weak in many advanced economies (AEs). Low and falling inflation in the Euro area has emerged as a major risk to its economy. Even as the global recovery remains weak, financial stability risks in many AEs raise concerns afresh. These risks are serious, and should they materialize, have the potential to derail the recovery process....Growth in the emerging market economies (EMEs) has also slowed down, reflecting country specific factors. It is worrying that potential growth in both AEs and EMEs has declined significantly. Thus, the challenge for policymakers in both AEs and EMEs is to put the current global recovery on a sustainable path and to raise the long-term global growth potential...The current macroeconomic situation continues to pose several challenges for policymakers in both AEs and EMEs. Ultra loose monetary policy in AEs has been pursued for long, which has led to under-pricing of risks in financial markets. Under-pricing of financial assets in both AEs and EMEs is likely to be corrected once accommodative monetary policies are reversed. This could lead to turmoil in financial markets and derail the recovery. To sustain the recovery, it is, therefore, important that financial stability risks are addressed in both AEs and EMEs. As accommodative monetary policies are leading more to financial risks than economic risks, the pros of continuing such policies need to be carefully weighed against the cons. However, the process of exit from unconventional monetary policies needs to be predictable and well communicated, and sensitive to developments. Central banks in AEs also need to take into account the spillovers of their policies on other economies. EMEs also need to take measures both to address financial stability risks and the adverse impact that the withdrawal of accommodative monetary policy may have on their financial markets and the real economies. Thus, there is an enhanced need for sensitivity to spillover effects, and to continue work on enhancing multilateral safety nets, as the AEs make the exit from unconventional monetary policies.""

- Rajan 2014 IMF

According to Masatsugu Asakawa, Japan’s "vice finance minister for international affairs", at the October, 2016 meeting of the G20 in Washington, DC, "[f]inance ministers from the world’s top economies debated global economic risks and the potential impact that ultra-loose monetary policies have on banks’ profits....The IMF has also urged countries to fix their over-reliance on ultra-loose monetary policy by making more use of fiscal and structural policies to boost their economies. The G20 finance leaders discussed the pros and cons of the ultra-loose monetary policies undertaken by advanced economies, with some pointing to the damage very low borrowing costs could inflict on bank profits.... But there was some debate on whether ultra-easy monetary policy alone were to be blamed for low bank profits, [Asakawa] added.