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What Role Does the Housing Market Play for the Transmission Mechanism? (DIVA, 23-page read) A study modelling Sweden’s economy finds that interest rates have both a direct effect on housing prices and an indirect impact through the bank lending channel. Over time, the importance of the interest rate channel has been stable. However, the role of the bank lending channel has increased. On aggregate, this implies interest rate sensitivity has increased.
End of Myth of ‘Independent’ Central Banks (OMFIF, 3 min read) The Fed and other central banks of leading advanced countries have been working closely with finance ministries on joint monetary and fiscal packages, their main aim being to offset the enormous hit on incomes and output from the shutdowns. If they are collaborating and serving the same state – are central banks really independent? Sir John Redwood thinks not.
High Inflation is Unlikely But Not impossible in Advanced Economies (PIIE, 6 min read) Inflation return has a low probability (3%) but should not be dismissed. Fiscal dominance of monetary policy, a large increase in the debt-to-GDP ratio, and the possibility of an increase in the neutral rate of interest can all bring back inflation.