Inflation Targeting and Financial Stability (eBook)

Michael Heise is Global Chief Economist at Allianz SE, where he advises the board on economic and strategic issues. He is responsible for the analysis and forecasts of the international economy, and for financial markets and risk analysis. Heise studied and graduated from Cologne University and teaches as a honorary professor at the Johann Wolfgang Goethe University in Frankfurt-am-Main. Before joining the Allianz Group, Heise was Secretary General of the German Council of Economic Experts, Chief Economist and Head of Research at DZ Bank.

Foreword 5
Preface 7
Contents 9
List of Abbreviations 10
List of Figures 11
1: Introduction 13
Reference 16
2: Some Reflections on the Secular Decline in Interest Rates 17
2.1 Fundamental Factors 17
2.2 The Impact of Monetary Policy 30
References 40
3: Uncertainties About the Monetary Transmission Mechanism 42
3.1 The Credit Channel in Times of Deleveraging 43
3.2 The Risks Involved in the Asset Price Channel 49
3.3 The Impact of Monetary Policy and the Phillips Curve Debate 55
References 59
4: Side Effects of Monetary Accommodation 61
4.1 The Impact on Financial Wealth and Retirement Assets 62
4.2 The Impact on Inequality 64
4.3 Target II Imbalances 69
4.4 The Risk of Serial Financial Bubbles 72
4.5 The Relentless Rise of Debt 76
References 82
5: Towards a Monetary Policy Fit for the Future 84
5.1 Recalibrating Inflation Targets 85
5.2 Accounting for Trade-Offs with Financial Stability 89
5.3 The Role of More Discretionary Elements 93
5.4 The Risks of QE as the New Normal 95
References 98
6: Conclusions 99
References 102
Appendix: Op-Ed List 103
Project Syndicate 103
The Debt Shackles Return 103
Financial Times 106
Fed’s failure to tighten financial conditions a cause for concern 106
Financial Times 108
Bond markets need to wake up to global upswing 108
Project Syndicate 110
Rewriting the Monetary-Policy Script 110
Financial Times 113
Monetary policy lacks the muscle to boost growth 113
Wall Street Journal 115
Hitting the Limits of Monetary Policy 115
Even ECB President Mario Draghi admits he’s running out of options. 115
Financial Times: Markets Insight 118
Don’t forget the upside of ‘lower for longer’ oil 118
It’s time to remember the fundamentals—low oil prices will boost the global economy 118