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1 – 10 of 634The purpose of this paper is to present an empirical analysis of the European Central Bank (ECB) deposit rate dynamics during 2014–2020, attempting to answer how deep could be cut…
Abstract
Purpose
The purpose of this paper is to present an empirical analysis of the European Central Bank (ECB) deposit rate dynamics during 2014–2020, attempting to answer how deep could be cut further this rate without causing persistent yield curve inversions (YCI), i.e. lower yields for longer terms. It addresses the sustainability of the traditional banking and shows that inverted yield curves would require changing the banking-as-usual model to the government-guaranteed long-term-borrowing coupled with short-term-lending. This research poses the question of whether the banking sector should become a public utility.
Design/methodology/approach
The future scenarios of negative interest rate (NIR) behavior are modeled seeking to increase the understanding of NIR environment. Using an event-study design, empirical analyses of the ECB deposit rate cuts on the Euro Over-Night Index Average rates is performed at different maturities.
Findings
This study finds that, starting from the lower limit of 80 basis points below zero, the ECB deposit rate is likely to result in complete YCIs.
Social implications
This paper evidences that moving rates into a more negative territory is likely to be completely counterproductive for banking industry, implying that banking at such conditions would become heavily dependent on governmental support. The results shed light on the interdependence of the banking business, financial monetary policy and welfare of the society, providing policymakers with empirically defined milestones for policy implementations.
Originality/value
This paper clarifies the impact of the ECB deposit rate on the overall shape of yield curves. The novelty of this research resides in investigation of YCI by simulating NIR dynamics.
Details
Keywords
- Monetary policy
- Financial risk and risk management
- Determination of interest rates
- Policy designs and consistency
- Simulation modeling
- Term structure of interest rates
- ECB deposit rate
- EONIA
- Negative interest rates
- Financial economic policy
- Financial market regulators
- Banks
- Yield curve inversion
- Reversal rate
- Sustainability
- Coronavirus policy tools
- Financial markets and institutions
- E43
- E44
- E52
- E58
- G12
- G20
This chapter analyzes the rules and institutions that have characterized the European Monetary Union (EMU) during its prolonged crisis, stressing the limits of the strategy…
Abstract
This chapter analyzes the rules and institutions that have characterized the European Monetary Union (EMU) during its prolonged crisis, stressing the limits of the strategy pursued by the European authorities. It also examines the issues of current account imbalances, economic growth and the problem of debt, and their interconnections. The main purpose of this chapter is to indicate feasible economic solutions and political arrangements in order to complete the institutional system of the EMU. This requires appropriate reforms of its institutional architecture. But such reforms demand changes in the treaties in order to make the Eurosystem more consistent and endowed of democratic legitimacy, so to have appropriate tools, resources and policies that can contribute to the stability, cohesion and development of the Eurozone.
Details
Keywords
Inflation rates are rising sharply across Central-Eastern Europe (CEE), mainly thanks to a recovery in commodity prices. A flurry of stronger-than-expected economic data is…
Details
DOI: 10.1108/OXAN-DB218505
ISSN: 2633-304X
Keywords
Geographic
Topical
QE’s influence on Central Europe’s bond markets.
Details
DOI: 10.1108/OXAN-DB229123
ISSN: 2633-304X
Keywords
Geographic
Topical
Monetary divergence
Details
DOI: 10.1108/OXAN-DB231763
ISSN: 2633-304X
Keywords
Geographic
Topical
Following the meal, the Fed said Powell did not discuss monetary policy "except to stress that the path of policy will depend entirely on incoming economic information and what…
Details
DOI: 10.1108/OXAN-DB241660
ISSN: 2633-304X
Keywords
Geographic
Topical
EURO-AREA: ECB policy will support markets and growth
Details
DOI: 10.1108/OXAN-ES198148
ISSN: 2633-304X
Keywords
Geographic
Topical
The dollar index has fallen by about 10% since early January, to its lowest since April 2016, under the strain of US President Donald Trump’s political woes and robust euro-area…
Details
DOI: 10.1108/OXAN-DB223941
ISSN: 2633-304X
Keywords
Geographic
Topical
Prospects for the global economy in 2016.