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Monday, June 4, 2012

How do you say goodbye in Greek?

http://www.businessinsider.com/buiter-greece-will-leave-emu-on-1-january-2013-2012-5
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4 comments:

EconPirate said...

Hey Doc, question about something I've never really understood and can't seem to find any decent explanations of online. How does Eurozone monetary policy work? I understand the US - buy & sell TSecurities to affect the fed funds rate & $base. In the Eurozone does the European Central Bank buy & sell Gov't securities of member nations to manipulate the supply of reserves and money? If so, how does it decide the quantity of one member over a other?

June 4, 2012 at 8:40 AM
Randall Parker said...

Yes they do buy sovereign debt of the different countries and this is done at the national bank level. So the national banks of the different countries are like the district banks of the Federal Reserve. The ECB however has more lattitude in the securities they buy than does the Fed. They even buy private securities.
It should be pointed out that the recent hair cut that people took on the Greek government debt did not apply to the ECB as they were held harmless.
I am not aware of how the purchases are distributed across the countries but I would imagine it is like what the Fed does as open market operations are done based on the relative size of the different district banks' balance sheets.
Everything you wanted to know about the ECB is at www.funnyeconomist.com/ECB.pdf and I put it up there this morning just for you dude! See page 104 for starters.

June 4, 2012 at 11:07 AM
Econ Pirate said...

Interesting.

I do think we are on different pages a bit, especially your response that "open market operations are done based on the relative size of the dIfferent district bank's balance sheets". My question is how does the Fed decide the quantity of debt to purchase/sell of a particular nation. The FOMC doesn't really have this problem as it purchases US federal debt owned by primary dealers - there isn't a corollary in the Eurozone as the ECB apparently purchases/sells the debt of multiple nations.

June 4, 2012 at 12:39 PM
Randall Parker said...

You mean the ECB not the Fed buying a particular nation's debt.
What I was saying is that I am guessing that the different national banks get their purchasing orders based on the relative size of the central bank's assets compared to the other members of the ECB. So if the German national bank has 50% of the assets of all memebers they would get 50% of the action. I am sure it probably also depends upon who needs help the most in exigent circumstances. That is what I am guessing.

June 4, 2012 at 1:13 PM

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