The ECB Is Making A Huge Mistake And Ignoring One Of Ben Bernanke's Most Famous Papers


The ECB’s hawkish tone and intention to raise rates is a move out of line with Federal Reserve Chairmen Ben Bernanke’s famous economy paper Systematic Monetary Policy and the Effects of Oil Price Shocks, according to Ambrose Evans-Pritchard.

Bernanke’s (along with Mark Gertler and Mark Watson) paper points out that it is central bankers, not the impact of the actual rise in oil prices, that cause economic slowdowns in the wake of oil spikes.

His conclusion:

That the greatest portion of the impact of the oil price shock on the real economy is attributable to the central bank’s response to the inflationary pressures engendered by the shock.

And now Jean-Claude Trichet and the ECB look set to start the whole process all over again.

Ambrose Evans-Pritchard speculates that this is because the ECB has lost its hawkish image in the wake of the departure of Axel Weber, and now it must prove its loyalty to Germany, rather than look out for more troubled states like Spain.

As a reminder, the last time the ECB raised rates during an oil spike, the world market tanked.

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