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Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

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In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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Post-COVID Exogenous and Endogenous ECB Monetary Policy I

Post-COVID Exogenous and Endogenous ECB Monetary Policy I

Corrado Macchiarelli

15 years: Macroeconomist

In this video, Corrado explains the effects of unexpected increases in US and Euro Area policy interest rates. He further explains how Fed tightening leads to a reduction in the Euro Area’s GDP.

In this video, Corrado explains the effects of unexpected increases in US and Euro Area policy interest rates. He further explains how Fed tightening leads to a reduction in the Euro Area’s GDP.

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Post-COVID Exogenous and Endogenous ECB Monetary Policy I

7 mins 58 secs

Overview

Increased international trade and financial globalisation have increased interdependence between the world's economies and made them more vulnerable to international shocks. Financial globalisation also has an impact on the transmission mechanism of monetary policy, where foreign monetary policy can be perceived as either beneficial or detrimental. It is detrimental, for example, whenever the central bank of a large open economy like the United States' Federal Reserve, or Fed, tightens monetary policy.

Key learning objectives:

  • Understand how Fed tightening leads to a reduction in the Euro Area’s GDP

  • Understand the impact of ECB monetary policy on the US economy

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Summary

NIESR’s Analysis

The National Institute of Economic and Social Research, or NiGEM, has developed a new simulation that simulates the effects of unexpected increases in US and Euro Area interest rates. We are examining the results of an exogenous, 1 percentage point increase in policy rates relative to the baselFine, with a focus on transmission channels and the size of the spillovers. The simulation results indicate that the Fed's influence on the Euro Area is significant. It affects financial conditions (such as bond rates) and economic activity, meaning output, through a weaker euro against a stronger US dollar. In most countries, lower domestic demand is counterbalanced by the positive contribution from the net trade as net exports increase. A restrictive monetary policy in the US in NiGEM would shift the Euro area's demand from domestic to foreign, thereby increasing pressure on production and prices.

Bilateral Spillovers Between the Euro Area and the United States

In NiGEM, ECB and Fed monetary policies have a significant influence on local financial conditions, real activity, and inflation. A surprise monetary policy tightening by the ECB or the Fed boosts domestic government and bond rates, depresses local equity markets, and causes the domestic currency to appreciate. Conversely, the impact of ECB monetary policy on the US economy is close to zero after five years.

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Corrado Macchiarelli

Corrado Macchiarelli

Dr. Corrado Macchiarelli is the global macroeconomics research manager in the macroeconomic modeling and forecasting team at NIESR (National Institute of Economic and Social Research). He is also the managing editor of the National Institute Economic Review (Cambridge University Press).

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