This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.
The Death of the Inflation Regime (William Blair, 9 min read) William Blair outlines the negative impact of the current monetary practices for the banking sector. Higher reserves [due to QE] serves to lower banks’ asset duration and make them increasingly sensitive to lower central bank deposit rates. Tiering, although it lessens damages on bank bottom lines, still pushes them towards riskier sources of returns. Blair claims that the current monetary regime could get abandoned, but it may take decades.
Has Monetary Policy Made You Happier? (BoE, 14 page read) The BoE assess the impact of loosening UK monetary policy after the financial crisis on well-being. They find welfare benefits are positive, in aggregate and across most of the distribution. Factors that were supported by MP such as lower unemployment and less financial stress make a significant difference. The young have benefited more than the old.
Monetary Policy Independence and Strength of the Global Financial Cycle (BoC, 31 page read) This Bank of Canada working paper shows three things. (i) The strength of the global financial cycle varies substantially over time and, moreover, that this variation exhibits substantial variations across countries. (ii) Based on evidence from 9 EM’s and 7 AE, central banks tighten their policy rates in response to an unanticipated increase in the inflation gap during times of low global financial cycle strength. During times of high financial strength, however, the response is muted and does not follow the Taylor rule (Key). (iii) Capital controls, macroprudential policies, and a flexible ER regime can increase MP independence.
Stock Market Participation, Inequality, and Monetary Policy (FRB, 36 page read) This paper studies the role that stock investment plays in the transmission of monetary policy to the real economy. An increase in the interest rate (MP tightening), moves investments away from stocks. This depresses aggregate investment and therefore aggregate output and income, feeding back into an even larger decline in stock investment.