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Necessary, suitable and proportionate (ECB blog, 5 min read) ECB Executive Board member Isabel Schnabel argues that without measures such as PEPP Euro area growth would have been around 1.3pp lower over the next two years and the inflation mandate out of reach. Compared with a policy rate of -1.7% needed to achieve the same impact as asset purchases the benefits of PEPP outweigh the costs. And temporary deviations from the capital key are justified to ensure smooth transmission of monetary policy.
Money and debt: Paying for the crisis (VoxEU, 11 min read) Monetisation of government debt by central banks can transform current credit and funding risks into future inflation risk. Central bank independence is crucial for inflation expectations to remain anchored in such an environment.
Where Is the Inflation? (William Blair, 5 min read) Advanced economies will continue to see low inflation as ‘an expanding central bank balance sheet is not a recipe for inflation. In part, this is because capital requirements force banks to hold larger deposits with the central banks. More importantly, while central banks can encourage banks to extend more credit, ultimately the banks are the ones calling the shots’. [Bearish Inflation]