The Impact of the Liquidity Coverage Ratio (LCR) on the Implementation of Monetary Policy
This paper analyses the impact of the short‐term component of the new Basel III liquidity standards, namely the liquidity coverage ratio (LCR), on the implementation of monetary policy in the euro area. It employs a conceptual framework to investigate the interaction between the money market and monetary policy implementation. Based thereon, it argues that the isolated focus on the impact on the LCR tends to underestimate the future challenges to monetary policy implementation for two reasons: first, feedback and network dynamics exacerbate the impact of the standard; second, the ongoing crisis itself challenges monetary policy implementation in the euro area by its impact on the (perceived) arbitrage relationship between open market operations and the unsecured money market. The paper concludes by discussing potential policy reactions concerning both, the calibration of the LCR and the framework for monetary policy implementation.
How to Monitor the Exit from the Eurosystem's Unconventional Monetary Policy: Is EONIA Dead and Gone?
This paper investigates the impact of the "unconventional" monetary policy measures taken by the Eurosystem on both the unsecured and the secured money markets. Furthermore, we provide insight into the shifts between the unsecured and secured markets. We provide a euro area overview and a Core-versus-Periphery breakdown. Our results show that: 1) there is a clear segmentation between Core and Periphery; 2) the use of the unsecured money market has decreased substantially and is no longer representative as a reflection of the euro area as a whole; and 3) the use of the secured money markets has increased substantially in value terms since the start of the crisis. Both the secured and the unsecured money markets reacted strongly to the first 3-year long term refinancing operations and quantitative easing. It is not to be expected that turnover in the money markets will revert to pre-crisis levels, in part because new regulation, such as the Basel III requirements, dissuades banks from engaging in short-term lending. Therefore, monetary policy experts should also devote their attention to steering the rates in the secured money market.
Deliberative Democracy and the Resource Curse: A Nationwide Experiment in Tanzania
Oil and gas discoveries in developing countries are often associated with short-sighted economic policies and, in response, calls to insulate resource management from populist impulses. We report on a randomized experiment testing methods to overcome this apparent tension between sound resource governance and democratic politics. Soon after Tanzania’s discovery of major natural gas reserves, we invited a nationally representative sample of voters to an intensive public deliberation of policy options featuring nationally recognized experts and small-group discussions. Democratic deliberation reinforced the public’s strong preference for rapid spending of gas revenues, but also increased support for various prudential and economically orthodox measures, including independent oversight of gas revenues, limits on government borrowing, and selling gas abroad rather than subsidizing fuel at home. These effects were driven by deliberation per se, rather than a pure information treatment, and show no evidence of contamination by facilitatoror peer-effects in group deliberations. www.cgdev.org Justin Sandefur, Nancy Birdsall, James Fishkin, and Mujobu Moyo