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 Monetary Policy Package: An Analytical Framework (ECB, 6 min read) In an effort to reverse the damage from Christine Lagarde’s blunder during last week’s press conference Phillip Lane’s blog noted that, the ECB “stand(s) ready to do more and adjust all of our instruments, if needed to ensure that the elevated spreads that we see in response to the acceleration of the spreading of the coronavirus do not undermine transmission” of monetary policy.
Why OMT is Not the Solution for Italy Right Now (Bruegel, 2 min read) OMT light, with minimal conditionality and a commitment to roll back stimulus once the crisis is over, could be a way to contain spread widening and financial contagion. But since it would require Italy to give up some of its economic sovereign at a time of national crisis and does little to protect the wider Euroarea, this is not the instrument to use.
The Fed’s Actions Sunday: All in on Monetary Policy; Partly in on Liquidity Support (Brookings, 6 min read) The Fed’s actions on Sunday will not end the worsening disruption from COVID-19 but they will nevertheless ease pressure in the financial system and leave the economy more able to rebound quickly when the health crisis subsides. Further actions could include more specific forward guidance and a resumption of both the Term Auction Facility and lending to non-banks.
Monetary and Financial Stability During the Coronavirus Outbreak (IMF, 3 min read) A co-ordinated effort to offset tightening financial conditions via rate cuts and liquidity injections is the optimal use of monetary policy in the current environment. Other crisis instruments such as targeted SME lending can also help. Banks can look to restructure loans temporarily, but financial stability risks must be monitored closely.