The Week That Was in Europe

We discuss how various forms of uncertainty affect the conduct of optimal monetary policy. We provide a summary of key insights from the academic literature, some of which are quite surprising. We explain how to make sense of them. We make reference to the following academic papers: Indicator variables for optimal policy,  LEO Svensson, M Woodford - Journal of Monetary Economics, 2003 https://www.sciencedirect.com/science/article/pii/S0304393203000308 Indicator variables for optimal policy under asymmetric information, LEO Svensson, M Woodford,  Journal of Economic Dynamics and Control Volume 28, Issue 4, January 2004, Pages 661-690 https://www.sciencedirect.com/science/article/pii/S0165188903000393 The learning cost of interest rate reversals, Martin Ellison, Journal of Monetary Economics, Volume 53, Issue 8, November 2006, Pages 1895-1907 https://www.sciencedirect.com/science/article/pii/S0304393206001498

We discuss with Professor Lars Feld (Advisor to the German Finance Minister) about what led to the Constitutional Court Ruling on the Debt Brake, what it implies for German federal budget and the Green Transition going forward.

Euro Area labour markets show astonishing resilience: unemployment rates are hovering around record lows despite serious adverse shocks having hit the Euro Area economy. We explore different explanation for this pheonmon and discuss whether it can last.

In October 2023, the European Council agreed on a reform of the European electricity market. We shed light on what went wrong in electricity markets in the past & critically review the main elements of the reform, together with Professor Andreas Loeschel, Chair of Resource Economics and Sustainability at the Ruhr University, Bochum, and Chairman of the German Governments’ Expert Commission for Monitoring the Energy Transformation.

We discuss with Prof. Jean-Marie Meier (Wharton School) about technology transfer to China: (i) what coercive methods does China deploy to force a transfer?, (ii) how do Western CEOs' incentives contribute to technology transfer? Based on Jean-Marie's latest research finding, we provide surprising insights, in particular on the latter mechanism. Jean-Marie Meier's research paper is available here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3949536#new_tab

We discuss the decisions taken by the ECB Governing Council and provide perspective on them.

Guntram Wolff, CEO of the German Council on Foreign Relations, discusses the need for a comprehensive European geopolitical strategy. Topics include reevaluating the concept of the end of history, diversification strategy to mitigate economic coercion, importance of contingency planning, and challenges in developing a unified European interest.

We discuss with Tobias Linzert about central bank frameworks for liquidity provision, in particular, how they changed following the financial crisis and how they might evolve going forward. Tobias is Adviser and Analytical Coordinator at the ECB’s Directorate General Market Operations.

We discuss the possible factors driving the recent strong increase in long-term government bond yields in the Euro Area. We disucss how monetary factors, fiscal developments and gobal factors have influenced bond yields dynamics.

Economists have a long tradition of opposing industrial policies measures, but advanced economies often use industrial policies to influence economic outcomes. We discuss with Professor Nathan Lane from Oxford University about what is known about the effects of industrial policies, when they work and when not.