Keyword: central banks

Gunther Schnabl; Nils Sonnenberg

Abstract

Gunther Schnabl and Nils Sonnenberg show that the ECB is weakening the profitability of banks while strengthening them in a way that allows it to implement policy goals with the help of commercial banks. Moreover, with the help of the negative interest rate policy, banks from the southern euro area, along with large banks that have struggled, tend to be propped up, but at the expense of banks in the northern euro area.

Keywords: Banking and credit, Blog, central banks, euro, European Union (EU), Featured Content, Gunther Schnabl, interest, Interest rate policy, low interest rate policy, Monetary policy, Monetary Policy and Finance, Nils Sonnenberg.

Erschienen in

Austrian Institute Paper No. 40-EN/2021.

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via Austrian Institute

Thomas Mayer; Gunther Schnabl

Abstract

We compare the New Keynesian and Austrian explanations for low interest rates in the light of the Corona crisis. From a New Keynesian perspective low interest rates are the result of structural changes in the society and the economy as well as the cyclical downswing triggered by the Corona pandemic. In contrast, from the perspective of Austrian economic theory, interest rates have been pushed down on trend by central banks for a long time to stimulate growth, with the global financial crisis of 2007/08 and the Corona crisis of 2020 acting as powerful accelerators of the euthanasia of interest. New Keynesian theory would suggest that interest rates can be adjusted upward again when conditions change, without creating economic and financial disturbances. Against this, Austrian theory finds that central banks have backed themselves into a corner by creating persistent low-interest expectations.

Keywords: aging societies, central banks, Corona crisis, credit creation, global savings glut, Hansen, Hayek, Keynes, Mises, Monetary policy, secular stagnation, Summers.

JEL Codes: E12, E14, E32, E43.

Erschienen in

Journal of Policy Modeling Volume 43, Issue 6, November–December 2021, Pages 1241-1258.

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via Science Direct