The ECB’s Balance Sheet and Draghi’s Confidence Game
Yves here. This post provides a high level summary and assessment of the ECB’s post-crisis conduct. Among other things, it demonstrates that the ECB makes the Fed look good. Some readers will take issue with the fact that Mody treats QE as a reasonable policy, when the experimental policy has goosed asset markets without doing much for the real economy. It has hurt savers by flattening the yield curve and reducing yields on longer-term investments and many economists believe it has exacerbated income inequality, which is increasingly seen as a drag on growth. However, the hair shirt of the Masstricht treaty rules out fiscal stimulus, and most economists accept the view that monetary stimulus is better than standing pat.
Read more...