Bank Of Greece Sa · ATHEX:TELL
Bank Of Greece Sa — Investor Presentation (September 2022)
33 slides from Bank Of Greece Sa's investor presentation, Sep 29, 2022
Slide 1: Fiscal/monetary policy mix in times of high inflation
Fiscal/monetary policy mix in times of high inflation Frank Smets European Central Bank – Ghent University 6th Annual Workshop: ESCB Research Cluster 2 Bank of Greece, 29-30 September 2022 The views expressed are those of the presenter and do not necessarily reflect those of the ECB.
Slide 2: Motivation
Motivation • Discussion on fiscal-monetary policy mix during the Monetary Policy Strategy Review: • Focused on the implications of low R*, low inflation and the ELB; • Fiscal and monetary policy work “hand in hand” to bring inflation up to the target; • Could be described as an “Active fiscal – pass
Slide 3: Motivation
Motivation • Questions: • How much of the current inflation is “fiscal inflation”, i.e. inflation driven by perceived unbacked fiscal expansion? • What is the appropriate fiscal/monetary policy response? • Important from a monetary policy perspective because: • Fiscal inflation may mean higher persi
Slide 4: Outline
Outline • Review the findings of the Monetary Policy Strategy Review on monetary and fiscal policy interaction at the ELB • Discuss recent developments in the inflation and associated fiscal and monetary policy outlook; • Briefly review the fiscal theory of the price level; • Review measurement of f
Slide 5: ECB Monetary Policy Strategy Review: Workstream on Monetary and fiscal policy interaction
ECB Monetary Policy Strategy Review: Workstream on “Monetary and fiscal policy interaction”
Slide 6: 2020/21 Monetary policy strategy review
2020/21 Monetary policy strategy review Main motivation: Pronounced trend decline in the equilibrium real interest rate and effective lower bound reduce space for conventional interest rate policy Core outcomes: Simple symmetric 2% inflation target Recognition of need for asymmetric reaction fun
Slide 7: Monetary – fiscal strategic complementarity at ELB
Monetary – fiscal strategic complementarity at ELB In low interest rate, low inflation environment • Fiscal and monetary policy can support each other • Lower efficacy of monetary policy, but higher fiscal multipliers • Favourable (r – g) creates more fiscal space • This “strategic complementarity”
Slide 8: Patient monetary and fiscal policy at the ELB
Patient monetary and fiscal policy at the ELB • Model-based analysis (ECB-BASE) • Interaction of different fiscal and monetary policy rules • Forward-looking exercise (until 2030) • Baseline based on ESCB Dec 2020 macroeconomic projections • Euro area simulations; no changes in country-specific risk
Slide 9: Forward-looking model simulations: The merits of patience
ECB-PUBLIC Forward-looking model simulations: The merits of patience Output gap (% of GDP) Inflation Interest rate Gov. debt Reference baseline (%) (%) (% of GDP) MP standard; FP patient MP patient; FP standard MP patient; FP patient 2.5 1.4 120 4 1.2 2 2 110 1 0 0.8 100 -2 1.5 0.6 -4 90 0.4 -6 1 0.
Slide 10: Effects of state-dependent forward guidance, large-scale asset purchases and fiscal stimulus
“Effects of state-dependent forward guidance, large-scale asset purchases and fiscal stimulus in a low-interest-rate environment”, Coenen-Montes-Smets (2021)
Slide 11: Countercyclical fiscal rules and the ZLB
“Countercyclical fiscal rules and the ZLB” Hauptmeier, Kamps and Radke (2022)
Slide 12: Escaping the Great Recession
“Escaping the Great Recession”, Bianchi and Melosi (2017)
Slide 13: Seemingly Irresponsible but Welfare Improving Fiscal Policy at the Lower Bound
“Seemingly Irresponsible but Welfare Improving Fiscal Policy at the Lower Bound”, Billi and Walsh (2022) • Argue that an AF/PM regime is welfare superior to an PF/AM regime when the ZLB is frequently binding in the latter. • The fiscal rules involve apparently irresponsible fiscal actions, raising s
Slide 14: Seemingly Irresponsible but Welfare Improving Fiscal Policy at the Lower Bound
“Seemingly Irresponsible but Welfare Improving Fiscal Policy at the Lower Bound”, Billi and Walsh (2022)
Slide 15: The Dire Effects of the Lack of Monetary and Fiscal Coordination
“The Dire Effects of the Lack of Monetary and Fiscal Coordination”, Bianchi and Melosi (2019) • Describe the consequences of a scenario in which the private sector expects that policymakers will follow non-coordinated policies. Specifically, the fiscal authority keeps postponing indefinitely the nec
Slide 16: The Dire Effects of the Lack of Monetary and Fiscal Coordination
“The Dire Effects of the Lack of Monetary and Fiscal Coordination”, Bianchi and Melosi (2019) • Agents expect a conflict between the two authorities following the end of the low demand shock period (the light gray area). • The solid line captures the case in which agents expect that the fiscal autho
Slide 17: The Dire Effects of the Lack of Monetary and Fiscal Coordination
“The Dire Effects of the Lack of Monetary and Fiscal Coordination”, Bianchi and Melosi (2019) • The dashed line captures the macroeconomic dynamics when agents expect the monetary policymakers to eventually dominate. • The solid line captures the case in which agents expect that the fiscal authority
Slide 18: The inflation risk is real
Opinion RTRS – UPDATE - Euro zone to coordinate fiscal, The inflation risk is real monetary policy to fight inflation 09-Sep-2022 02:51:20 PM By Jan Strupczewski and By Lawrence H. Summers Contributing columnist Jason Hovet ECONOMY May 24, 2021 at 2:09 p.m. EDT PRAGUE, Sept 9 (Reuters) - Euro zone f
Slide 19: General Government Debt, Primary balance, Core inflation
General Government Debt Core inflation EA US UK 7 EA UK US 140.0 6 120.0 5 100.0 4 80.0 3 60.0 2 40.0 1 20.0 0 -1 0.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20
Slide 20: Interest rates in the euro area: Nominal and real components
Interest rates in the euro area: Nominal and real components Russian invasion Pandemic crisis Pandemic crisis Russian invasion
Slide 21: Empirical question: What is the contribution of fiscal inflation in the US, UK, EA?
Empirical question: What is the contribution of fiscal inflation in the US, UK, EA? • “Fiscal inflation”: inflation driven by perceived unbacked fiscal expansion.
Slide 22: Funded versus unfunded fiscal transfer shocks
Funded versus unfunded fiscal transfer shocks (Bianchi, Faccini and Melosi, 2021) Leeper (1991) AM/PF PM/AF Mixed regime
Slide 23: Funded versus unfunded fiscal transfer shocks
Funded versus unfunded fiscal transfer shocks (Bianchi, Faccini and Melosi, 2021)
Slide 24: On the Low-Frequency Relationship between Public Deficits and Inflation
“On the Low-Frequency Relationship between Public Deficits and Inflation”, Kliem, Kriwoluzky, Sarferaz (2016a,b)
Slide 25: Do markets see risks of fiscal dominance in the euro area?
Do markets see risks of fiscal dominance in the euro area?
Slide 26: Identifying Fiscal Inflation
“Identifying Fiscal Inflation”, De Graeve and Queijo-Von Heideken (2016)
Slide 27: Classification of Monetary and Fiscal Dominance Regimes Using Machine Learning Techniques
“Classification of Monetary and Fiscal Dominance Regimes Using Machine Learning Techniques” Hinterlang and Hollmayr (2022)
Slide 28: Monetary and Fiscal Policies in Times of Large Debt: Unity is Strength
“Monetary and Fiscal Policies in Times of Large Debt: Unity is Strength”, Bianchi, Faccini and Melosi (2021)
Slide 29: Monetary and Fiscal Policies in Times of Large Debt: Unity is Strength
“Monetary and Fiscal Policies in Times of Large Debt: Unity is Strength”, Bianchi, Faccini and Melosi (2021)
Slide 30: Monetary and Fiscal Policies in Times of Large Debt: Unity is Strength
“Monetary and Fiscal Policies in Times of Large Debt: Unity is Strength”, Bianchi, Faccini and Melosi (2021)
Slide 31: UK Government Receipts and Expenditures (% of GDP)
Figure 1: UK Government Receipts and Expenditures (% of GDP) with 2022-23 estimate.. a 50-yr story of expenditures > receipts... 70 wwil Ms Covid-19 60 ears Seven Years’ \ War War 50 American Revolutionary War 40 French Revolutionary and 30 War of the Napoleonic Wars Austrian re 20 Succession 10 i)
Slide 32: Research questions
Research questions • How does the fiscal inflation component in the euro area and the UK compare with that in the US? • What is the appropriate monetary policy response given these estimates? • See Kumhof et al (2010), Benigno and Woodford (2006), Harrison (2022)
Slide 33: Thank you
Thank you
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