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The Limits of Extreme COVID Monetary Policy (Project Syndicate, 3 min read) The expanded use of unconventional monetary policy tools risks exacerbating existing vulnerabilities and reducing the effectiveness of the signally quality of interest rates. Instead, a wide-scale fiscal response aided by other tools such as the European recovery funds is needed.
The Phillips Curve at the ECB (ECB, 50 page read) A structural Phillips curve, where inflation deviations are a function of slack, inflation expectations and mark-up, explains inflation dynamics through 2013-17 mostly via reduced slack. The model has more difficulty explaining recent low core inflation, although inflation expectations have played a role.
UK Negative Rates Could Do More Harm Than Good (OMFIF, 3 min read) Financial stability risks, the reversal rate (where interest rate cuts become contractionary), endangered banking sector profitability, and signalling expectations of a deep downturn are all reasons to avoid a move to negative rates in the UK.