Macro Waves

In response to the pandemic, many governments took a vast range of measures to curb the impact of the pandemic on the economy. In this final episode, William De Vijlder shows how the state remains the “balance sheet of last resort” in the event of an economic crisis. He also reviews the current situation of public finances and what this implies in terms of dynamics of the debt/GDP ratio.

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Central banks have played a key role in supporting the economy during the pandemic-induced recession. To do so, they increased the size of their balance sheet. William De Vijlder explains the mechanisms governing this increase in their balance sheet. Is there any limit on how far it might go? He also explains the concept of direct monetary financing.

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The second episode focuses on non-financial companies. As well as having a considerable impact on their short-term (cash) and long-term assets (imperative of aligning their operational model with new requirements in terms of supply chain resilience), the Covid-19 crisis has obliged businesses to increase their indebtedness. This confronts them with a dilemma whether to strengthen their balance sheet by paying back debt or to maintain a high degree of leverage an invest.

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In the first episode, William De Vijlder takes a look at households’ balance sheets by considering how assets and liabilities are influenced by the pandemic. We will also see how the loss of human capital due to the deterioration of the labour market plays a key role in the post-pandemic economic environment.

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In the third podcast, William De Vijlder shows how a central bank’s persistently accommodating monetary policy to bring inflation in line with the target can have a negative impact over the long term, threatening both growth and financial stability. In case of a crisis, central banks no longer have much room to intervene, since they have used up their manoeuvring room in the pursuit of their inflation target.

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How to strike the right balance between inflation and financial stability has been a source of debate for decades. In this second podcast, William De Vijlder shows how the central banks give priority to inflation targets over financial stability. He uses a few examples to illustrate how central banks will opt to hold a steady course even when confronted with the risk of instability, which is often caused by financial market turmoil.

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In this podcast, we look at central banks policy objectives, which sometimes differ. The ECB’s top priority is to meet its inflation target, whereas the Fed is targeting both inflation and full employment. These objectives raise several questions: how can we measure inflation and full employment? How do central banks set their targets? And what instruments can be used to attain them? We will also see how central banks must deal with a constantly changing economic environment.

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In this last episode, William De VIjlder will show us how negative rates can have an unfavourable impact on financial income and notably retirement savings capital. Other questions arise: are these negative rates causing an increase in households’ savings rate and is this increase to last? And if so, to what extent can the monetary policy be affected?

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How negative rates can impact households and their savings? In this second part, we will see with William De Vijlder that there is no easy answer to this question given the heterogeneity of households and assets.

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In the first episode of this podcast, William De Vijlder analyses the causes of negative rates while explaining how they can brought about the “paradox of thrift”. What does this concept cover? And how could negative rates foster the emergence of such a paradox?

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