William De Vijlder

Group Chief Economist BNP Paribas

Hercules, Sisyphus and monetary policy

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The dots drive the dollar

The dots drive the dollar

The behaviour of Wall Street hasn’t exactly been exciting in recent weeks. The big move came on Wednesday 20th. It was all about the dots, the indications given by the FOMC members about the expected path for the federal funds rate.

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at low tide

Metaphoric market musings

Two friends sit on a beach somewhere on the French Atlantic coast… With this fictitious story the reader is invited to spot the metaphors often used in economic and market comments.

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The right timing of structural reforms

The importance of structural policy is unquestionable. This was clearly explained by Mario Draghi at the ECB Conference in Sintra. However, their impact not only depends on the timing but also on the types of measures, the credibility and the interaction with other policy measures.

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Eurozone: Blinded by the light?

Eurozone economic growth is robust. This dynamism is shared amongst its members. However, important structural differences remain. The favourable cyclical environment calls for an economic policy to boost potential GDP growth and strengthen the resilience.

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ECB: Sintra’s syntax

The market reaction to the introductory speech of Mario Draghi at the ECB conference in Sintra was strong
This reflects a high degree of unease about the prospect of a policy normalisation.

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Monetary tightening: Doomed if you do, doomed if you don’t ?

Monetary policy normalisation is a balancing act: tighten too early could trigger a recession, hike too late could mean an inflation overshoot and a need to raise rates more aggressively. The reaction of financial markets adds to the complexity of the balancing act. Different factors have made the job of central banks more difficult in recent years.

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Endogenous risks loom on the economic horizon

Replace ‘blue sky’ with ‘robust growth’ and ‘umbrellas’ with ‘economic policy instruments’ and you have a description of the global economic environment: robust growth but, if a downturn would come, very little manoeuvring room for fiscal and monetary policies to stimulate growth. All the more reason to keep a watchful eye on the horizon, and to prepare for clouds to appear.

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The art of negotiating (monetary) curves

“After a long straight, the driver downshifts and brakes slightly before going into a curve. When the curve proves to be tighter than expected, and with the car still cruising at high speeds, the driver hits the brakes harder. The wheels lock and the car skids out of control.” This metaphor seems to fit the challenges currently facing the US Federal Reserve

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Eurozone: how good can it get?

The eurozone is doing better. In fourth-quarter 2016, there was a real acceleration in both the manufacturing and services sectors. And according to European Commission data, both household confidence and business sentiment have improved strongly since mid-2016.

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Changing phases

Fiscal stimulus to an American economy at full employment is likely to trigger a tightening of financial and monetary conditions which in turn could affect growth prospects and investors’ appetite for risk. The route therefore looks well defined. It reflects a monetary policy which will gradually become more restrictive and will end up holding down growth.

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The IMF brings good news and…other news

The new World Economic Outlook of the IMF paints a rather positive short term outlook but medium term risks have risen. A more coordinated policy approach is needed to address these challenges. Find more in the EcoTV Week video.

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William De Vijlder

About William De Vijlder

Group Chief Economist BNP Paribas
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