Monetary policy and banking supervision: coordination instead of separation. CEPS Policy Brief No. 286, 12 December 2012

Introduction. Following the June 2012 European Council decision to place the ‘Single Supervisory Mechanism’ (SSM) within the European Central Bank, the general presumption in the policy discussions has been that there should be ‘Chinese walls’ between the supervisory and monetary policy arms of the ECB. The current legislative proposal, in fact, is explicit on this account. On the contrary, however, this paper finds that there is no need to impose a strict separation between these two functions. The authors argue, in fact, that a strict separation of supervision and monetary policy is not even desirable during a financial crisis when the systemic stability of the financial system represents the biggest threat to a monetary policy that aims at price stability. In their view, the key problem hampering the ECB today is that it lacks detailed information on the state of health of the banking system, which is often highly confidential. Chinese walls would not solve this problem. Moreover, in light of the fact that the new, proposed Supervisory Board will be composed to a large extent of representatives of the same institutions that also dominate the Governing Council, the paper finds that it does not make sense to have Chinese walls between two boards with largely overlapping memberships. In addition, it recommends that some members of the Supervisory Boards should be “independents” in order to reduce the tendency of supervisors to unduly delay the recognition of losses.

Are herbal remedies and dietary supplements safe and effective for breast cancer patients?

There remains limited scientific evidence on the efficacy and safety of 'natural' therapies such as herbal remedies and dietary supplements. Nevertheless, breast cancer patients are particularly prone to purchasing such products because of the perception that 'natural' products are less toxic than conventional prescribed medicines. However, the potential for interactions of supplements with current medications, the potential for adverse effects from consumption at high levels, and the lack of disclosure of such treatments by the patient to their doctor are serious public health issues. Robust clinical trials are required to prove the efficacy and lack of adverse effects of such preparations, and communication between patients and doctors must be improved and doctors made more aware that their patients may be seeking advice and treatment from sources outside conventional medicine.

Flexible rules cum constrained discretion: a new consensus in monetary policy

This paper demonstrates that recent influential contributions to monetary policy imply an emerging consensus whereby neither rigid rules nor complete discretion are found optimal. Instead, middle-ground monetary regimes based on rules (operative under 'normal' circumstances) to anchor inflation expectations over the long run, but designed with enough flexibility to mitigate the short-run effect of shocks (with communicated discretion in 'exceptional' circumstances temporarily overriding these rules), are gaining support in theoretical models and policy formulation and implementation. The opposition of 'rules versus discretion' has, thus, reappeared as the synthesis of 'rules cum discretion', in essence as inflation-forecast targeting. But such synthesis is not without major theoretical problems, as we argue in this contribution. Furthermore, the very recent real-world events have made it obvious that the inflation targeting strategy of monetary policy, which rests upon the new consensus paradigm in modern macroeconomics is at best a 'fair weather' model. In the turbulent economic climate of highly unstable inflation, deep financial crisis and world-wide, abrupt economic slowdown nowadays this approach needs serious rethinking to say the least, if not abandoning it altogether

Classifying monetary economics: fields and methods from past to future

We propose a simple, yet sufficiently encompassing, classification scheme of monetary economics. It comprises three fundamental fields and six recent areas that expand within and across these fields. The elements of our scheme are not found together and in their mutual relationships in earlier studies of the relevant literature; neither does this attempt aim to produce a relatively complete systematization. Our intention in taking stock is not finality or exhaustiveness. We rather suggest a viewpoint and a possible ordering of the accumulating knowledge. Our purpose is to promote discussion on the evolving nature and internal consistency of monetary economics at large.

The role of competition and state aid policy in financial and monetary law

During the financial crisis, companies and lenders found themselves in distressed situations. Competition authorities across the globe had to deal with controversial issues such as the application of the failing firm defence in merger transactions as well as assessment of emergency aid granted by states. This article considers competition policy in periods of crisis, in particular the failing firm defence in merger control and its state aid policy.

Monetary integration and real estate markets: an investigation of the impact of the introduction of a single currency on real estate performance

This paper assesses the impact of the monetary integration on different types of stock returns in Europe. In order to isolate European factors, the impact of global equity integration and small cap factors are investigated. European countries are sub-divided according to the process of monetary convergence. Analysis shows that national equity indices are strongly influenced by global market movements, with a European stock factor providing additional explanatory power. The global and European factors explain small cap and real estate stocks much less well –suggesting an increased importance of ‘local’ drivers. For real estate, there are notable differences between core and non-core countries. Core European countries exhibit convergence – a convergence to a European rather than a global factor. The non-core countries do not seem to exhibit common trends or movements. For the non-core countries, monetary integration has been associated with increased dispersion of returns, lower correlation and lower explanatory power of a European factor. It is concluded that this may be explained by divergence in underlying macro-economic drivers between core and non-core countries in the post-Euro period.