Modern Monetary Theory (MMT) is a political reaction to the constraints and costs of private financing for public spending. It is the explicit position that fiscal policy and monetary policy should be coordinated in order to avoid these constraints and costs. History is relevant. The future is untold. Money is currency is money. I hope …read more
September 2019 was a volatile month for US money markets as a confluence of events caused sudden shortages of excess reserves in the financial system. The Federal Reserve stepped in to shore up liquidity, but not before secured overnight funding rates spiked to over five percent. In this blog post we describe how stress in …read more
The concept of stability in the Chinese currency has been of great interest to investors, especially since the introduction of the People’s Bank of China’s (PBoC) preferred measure of CNY strength, the ‘CFETS index’. As it stands, the official stance of Chinese policymakers is to manage the bilateral exchange rate versus USD such that CNY …read more
If the self-imposed constraints of the ECB’s quantitative easing programme are respected, we estimate that the ECB will run out of eligible German Bunds (and German state and agency debt) to buy by mid to late 2018. We see this as the perfect excuse the ECB has for an early tapering of QE, as the Eurozone recovery consolidates.
The US dollar is at an inflection point. Can the dollar’s cycle continue in the face of convergent economic fundamentals and central bank coordination?
Are currency markets stuck in a period of short-term mean reversion? If so, what’s driving this and what are the implications for investors?
In response to almost a decade of QE and with little discernible effect, central bankers have resorted to negative interest rates. What is the zero lower bound and will below zero rates have the desired effect?
If negative interest rates fail to halt deflationary momentum, could more extreme options such as ‘helicopter money’ be a viable next step?
• Has the SNB reached the Zero Lower Bound? After last week’s ECB deposit rate cut, we assess the likelihood of further accommodative monetary policy in Switzerland.
• By applying a Taylor Rule approach to reveal the SNB’s own estimate of the neutral real interest rate, we estimate that there is indeed room for further interest rate cuts, especially as domestic Swiss real interest rates are still moderately elevated.
•The economic rationale for entering, and ultimately exiting a regime of exchange rate interventions is markedly different for the Czech National Bank relative to the Swiss National Bank.
•The central bank balance sheet, politics and nature of the underlying economy (and currency) are, amongst other things, important factors in helping determine the likelihood of a central bank continuing to intervene in the FX market.