#IEO report: IMF Advice on Unconventional Monetary Policies (UMP)
Recommendation 2 - Deepen work on the costs and benefits of UMP and related policies to develop a playbook on policy responses for use in future downturns. ieo.imf.org/en/our-work/ev…
Excerpt in comment below
Chapter 9 p 40
"As future use of UMP is likely to generate more debate about its likely distributional effects, [..] the IMF could analyze the distributional impacts of such policies to provide the basis for IMF policy guidance on this issue." p. 40, chp 9.
Background paper.
The Risks and Sides Effects of UMP - An Assessment of IMF Views and Analysis.
(Turner, Rebucci, Zhou, Monnin)
Chapter 3 on Distributional Impact of UMP, p. 33 ieo.imf.org/~/media/IEO/Fi…
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Important steps taken by @ecb to incorporate climate change in its monetary policy operations
Principles are going in right direction, but concrete implementation must have teeth to effectively support the transition and address climate risks in ECB balance sheet
Benchmark for corporate bond reinvestment will be be based on backward (emissions: Scope 1+2 at the firm level + Scope 3 at sector level) + forward looking (reduction targets) data
Delta allocation weight between polluting and sustainable firms is key for measure to have impact!
Concentration limits for pledged collateral from firms with a high carbon footprint
Threshold for defining high carbon firms will signal which firms are considered as sustainable, and which ones are not
Size of limit is crucially matters for the measure to have impact
The @ecb will accept sustainability-linked bonds as collateral for Eurosystem credit operations and asset purchases. What does it mean and is it important for the transition to a low-carbon economy?
Analysis in thread below
(1/7)
Sustainability-linked bonds are tied to specific social or environmental goals which, if not met, oblige companies to step up their interest payments. They thus introduce a financial incentive for companies to achieve environmental goals
(2/7) sustainalytics.com/sustainable-fi…
So far, bonds were eligible as collateral and for asset purchases by @ecb only if their interest payment path was set at issuance. Given that sustainability-linked interest is uncertain and depends on goals achievement, such bonds were not eligible. @ecb has changed that. (3/7)
Pandemic and environmental crises profoundly modify demand and supply for some goods and services.
This radically reshuffles firms' asset values on financial markets and creates substantial financial risks.
See @NGFS_ for the case of climate change
(2/6) ngfs.net/sites/default/…
Financial markets are not good at assessing transition risks linked to pandemic and environmental crises. They are mispricing them.
This is acknowledged by central banks and financial supervisors.
See, eg, the last ESRB report on climate risks
(3/6) esrb.europa.eu/pub/pdf/report…
In short
- Households & firms need massive emergency #credit to cope with #COVID19
- #centralbanks are critically accommodating credit markets
- CBs must guarantee sustainable credit conditions
- CBs must ensure that credit go where it's needed
- #HelicopterMoney is option
(2/9)
#fiscalpolicy is crucial to ensure most vulnerable get the help needed. Ambitious fiscal plans have been pledged.
Volume and price countries get on markets is key to scale-up public response to #COVID19 and for #sustainability of sovereign debt.
(2/5) #COVID19 crisis highlights the fragility of our economies to disruptions. The destabilisation of ecosystems by #ClimateChange - which is under way - is also a source of disruptions for our economic systems - maybe less violent than an epidemy, but which will last for years.
(3/5) An efficient containment of #COVID19 relies on: 1) changes of individual behaviours (e.g. social distancing) and 2) radical political decisions (e.g. quarantines). Preventing future disruptions from #ClimateChange also requires a change in behaviour and political decisions.
(1/4) Today, the @ecb Governing Council has tasked the relevant Eurosystem Committees with examining options […] such as the design of a tiered system for reserve remuneration and […] the size and composition of potential new net asset purchases ecb.europa.eu/press/pr/date/…
@ecb (2/4) Integrating the environmental risks outlined by the @nfgs_ (of which the @ecb is a member) and ensuring that these options are aligned with the transition to a low-carbon economy is critical and should be on top of @ecb’s agenda, including… banque-france.fr/sites/default/…