The Numbers Are Too Big: IMF Research on Euro Policy Without a Single Absolute € Figure

Tuesday, September 01, 2009

On Tuesday the IMF published a research paper that states "Euro Area Monetary Policy in Uncharted Waters".
It is time to ring the bell for the Euro system when the IMF manages to publish a 36-page paper without a single absolute € figure on the size of the mass-printing actions of the European Central Bank (ECB.)
Scroll down the IMF pdf to page 9 to arrive for a guide how to assess efficiency of ECB policy. Ah, forget the download of this paper, just parse the 3 highlights below and save the other time.


GRAPH: Will this formula save the Euro? Source: ECB. Click to enlarge.
Looking for somewhat easier information page 14 delivers the first interesting graph on actual inflation and the daydream of central banks, called estimated inflation expectations.

GRAPH: The black line is actual inflation, the red line is the daydream of Europe's central banks: inflation expectations. Chart courtesy ECB. Click to enlarge.
The executive summary of the paper says this:
We analyze the European Central Bank's (ECB's) response to the global financial crisis. Our results suggest that even during the crisis, the core part of ECB's monetary policy transmission-from policy rates to market rates-has continued to operate, but at a decreased efficiency. We also find some evidence that the ECB's non-standard measures, namely the lengthening of the maturity of monetary policy operations and the provision of funds at the fixed rate, reduced money market term spreads, facilitating the pass-through from policy to market rates. Furthermore, the results imply that the substantial increase in the ECB's balance sheet may have contributed to a reduction in government bond term spreads.
I allow myself to point out that there is not a single absolute currency figure. The IMF now calls money "units."
Well, as we are in the Trillions it does not really matter. All EU banking systems are beyond the breaking point as all economic policies run into descending tax income vs rising social expenditures on global terms.
Fiat money won't do it again. And by the way: markets go up and down.

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