Eoin Treacy's view

BIS: “Regulatory change and monetary policy”

The new liquidity regulations will increase the demand for reserve balances, other forms of HQLA, and short-term loans (with resulting cash inflows) relative to less liquid assets and longer-term loans. Those changes will have a number of consequences. One such consequence that could have important monetary policy implications will be a steepening of the front end of the yield curve for any given expected path for overnight rates. In jurisdictions where the central bank primarily influences the overnight rate, but longer-term interest rates are more relevant for economic activity, the central bank will thus need to target a somewhat lower level of interest rates to achieve the same economic outcome. Another consequence could be that the turnover in different money market segments changes, and that the central bank may thus want to consider switching its operational target variable to an instrument that is less affected by (or benefits from) any such change in market turnover

Fed (St. Louis): Does the United States Lead Foreign Business Cycles?

The U.S. financial crisis of 2007-08 had detrimental and lasting effects on the economies of other nations, reinforcing the leading role played by the United States in the global economy. The authors assess this role by determining whether U.S. output growth informs business cycle turning points in the economies of other nations. They find that U.S. economic growth influences both the timing and duration of business cycle phases for Canada, Germany, the United Kingdom, and, to a lesser extent, Mexico. However, they find no relationship between U.S. output growth and the business cycles of France, Italy, and Japan.