Matthew Higgins and Thomas Klitgaard



Household saving has soared in the United States and other high-income countries during the COVID-19 pandemic, despite widespread declines in wages and other private income streams. This post highlights the role of fiscal policy in driving the saving boom, through stepped-up social benefits and other income support measures. Indeed, in the United States, Japan, and Canada, government assistance has pushed household income above its pre-pandemic trajectory. We argue that the larger scale of government assistance in these countries helps explain why saving in these countries has risen more strongly than in the euro area. Going forward, how freely households spend out of their newly accumulated savings will be a key factor determining the strength of economic recoveries.

Helene Lee and Asani Sarkar




The European Central Bank (ECB)’s marginal lending facility has been used by banks to borrow funds both in normal times and during the crisis that started in 2007. In this post, we argue that how a central bank communicates the purpose of a facility is important in determining how users of the facility are perceived. In particular, the ECB never refers to the marginal lending facility as a back-up source of funds. The ECB’s neutral approach may be a key factor in explaining why financial institutions are less reluctant to use the marginal lending facility than the Fed’s discount window.

Moreno Bertoldi, Paolo Pesenti, Hélène Rey, and Valérie Rouxel-Laxton



On April 18, 2016, the New York Fed hosted a conference on current and future policy directions for the linked economies of Europe and the United States. "The Transatlantic Economy: Convergence or Divergence?"—organized jointly with the Centre for Economic Policy Research and the European Commission—brought together U.S. and Europe-based policymakers, regulators, and academics to discuss a series of important issues: Are the economies of the euro area and the United States on a convergent or divergent path? Are financial regulatory reforms making the banking and financial structures more similar? Will this imply a convergence in macroprudential policies? Which instruments do the United States and the euro area have at their disposal to raise investment, spur productivity, and avoid secular stagnation? In this post, we summarize the principal themes and findings of the conference discussion.

Emily Eisner, Antoine Martin, and Ylva Søvik



What types of counterparties can borrow from or lend to a central bank, and what kind of collateral must they possess in order to receive a loan? These are two key aspects of a central bank’s monetary policy implementation framework. Since at least the nineteenth century, it has been understood that an important role of central banks is to lend to solvent but illiquid institutions, particularly during a crisis, as this provides liquidity insurance to the financial system. They also provide liquidity to markets during normal times as a means to implement monetary policy. Central banks that rely on scarcity of reserves need to adjust the supply of liquidity in the market, as described in our previous post. In this post, we focus on liquidity provision related to the conduct of monetary policy.

Thomas Klitgaard and David O. Lucca



Euro area sovereign bond yields fell to record lows and the euro weakened after the European Central Bank (ECB) dramatically expanded its asset purchase program in early 2015. Some analysts predicted massive financial outflows spilling out of the euro area and affecting global markets as investors sought higher yields abroad. These arguments ignore balance of payments accounting, which requires any financial outflow from the euro area to be matched by a similar-sized inflow, absent a quick and substantial current account improvement. The focus on cross-border financial flows also is misguided since, according to asset pricing principles, the euro and global asset prices can move without any change in financial outflows.

Thomas Klitgaard and Patrick Russo



The rise in oil prices from near $30 per barrel in 2000 to around $110 per barrel in mid-2014 was a dramatic reallocation of global income to oil producers. So what did oil producers do with this bounty? Trade data show that they spent about half of the increase in total export revenues on imports and the other half to buy foreign assets. The drop in oil prices will unwind this process. Oil-importing countries will gain from lower oil bills, but they will also see a decline in their exports to oil-producing countries and in purchases of their assets by investors in these countries. Indeed, one can make the case that the drop in oil prices, by itself, is putting upward pressure on interest rates as income shifts away from countries that have had a relatively high propensity to save.

Linda Goldberg, John Rogers, Luca Dedola, and Livio Stracca



International financial flows are a key feature of the global landscape and are relevant in many ways for central banks. With these themes as a backdrop and with swings in some capital flows across countries in response to global economic and financial conditions, the second biannual Global Research Forum on International Macroeconomics and Finance was held at the Federal Reserve Board in Washington, D.C., in November. The purpose of the forum, which is organized by the European Central Bank, the Federal Reserve Board, and the Federal Reserve Bank of New York, is to promote the discussion of topics at the frontier of research in international finance, banking and macroeconomics, with a special focus on their relevance for monetary policy.

Jan J.J. Groen

Global asset market developments during the summer of 2013 have been attributed to changes in the outlook for U.S. monetary policy, starting with former Chairman Bernanke’s May 22 comments concerning future curtailing of the Federal Reserve’s asset purchase programs. A previous post found that the signal of a possible change in U.S. monetary policy coincided with an increase in global risk aversion which put downward pressure on global asset prices. This post revisits this episode by measuring the impact of changes in Fed’s expected policy rate path and in the economic outlook on the U.S. dollar and emerging market equity prices. The analysis suggests that changes in the U.S. and foreign outlooks had a meaningful role in explaining global asset price movements during the so-called taper tantrum.

Moreno Bertoldi, Philip R. Lane, Paolo Pesenti, and Valérie Rouxel-Laxton

The reason why the macroeconomic policy mix has been different on the two sides of the Atlantic in recent years remains a hotly debated issue. Was it due to a different reading of the root causes of the global financial crisis and therefore of the type of policy response considered most appropriate? Or was it instead the result of incomplete economic and financial integration in the euro area and the absence of a solid backstop for sovereign and banking sector problems, factors that led the euro area—as put by European Central Bank (ECB) President Mario Draghi—to resort to “policy choices made under the pressure of events and that were commendable by themselves, but that were sequenced in the wrong order”? Or was it a combination of the two? Looking forward, will the policy mix continue to be different? Are the United States and the euro area at risk of secular stagnation? What are the most effective fiscal consolidation plans for advanced economies with a high government debt/GDP ratio? What are the risks related to evolving liquidity conditions? And is there room for cooperation on the two sides of the Atlantic on macroprudential issues?

Claudia M. Buch, James T.E. Chapman, and Linda S. Goldberg

Over the past thirty years, the typical large bank has become a global entity with subsidiaries in many countries. In parallel, financial liberalization has increased the interconnectedness of banking systems, with domestic banking systems becoming more exposed to shocks transmitted through foreign banks. This globalization of banking propagated liquidity risk during the global financial crisis and subsequent euro area crisis. Unfortunately, little is known about how cross-border operations of global banks transmit liquidity shocks between countries. The seminal work by Peek and Rosengren (1997, 2000) provides early examples of how bank-level data can help identify the specific transmission channels. There are, however, two limitations to conducting this line of research. First, there is a lack of public data on the balance sheets of global banks. Second, it is difficult to compare the results of different research projects that use sensitive supervisory data collected by banking supervisors and central banks. Together with other scholars, we established the International Banking Research Network (IBRN) to overcome these limitations.