class: center, middle # From Bazooka to Backstop: The Emergence of a Permanent International Lender of Last Resort ## Central Bankers are Bricolageurs **Mathis Richtmann & Lea Steininger** [@nullnein](http://twitter.com/@nullnein) & [@LeaFeuDeJoie](http://twitter.com/@LeaFeuDeJoie) *October 25th 2019, FMM* [full paper](http://mathis.oija.de/schreiben/_blog/central-bankers-are-bricolageurs) --- # Central Bankers are like McGyver -- .center[] --- # Outline --- name: outline #### Outline <video width="100%" autoplay muted poster="animations-outline/Folie1.png"> <source src="animations-outline.mp4" type="video/mp4"> </video> --- name: Causal #### Causal Variable --- template: Causal ## Eurodollar Markets  --- name: Outcome #### Outcome --- template: Outcome <video width="100%" autoplay muted poster="animations-balance-sheets/Folie1.png"> <source src="animations-balance-sheets.mp4" type="video/mp4"> </video> --- template: Outcome <video width="100%" autoplay muted poster="animations-timeline/Folie1.png"> <source src="animations-timeline.mp4" type="video/mp4"> </video> --- template: Outcome - Emerge ad-hoc in December 2007, as reiteration of previous facilities - Reciprocal currency swap arrangements between Central Banks, negotiated rates - Solve Eurocurrency international lender of last resort problem - Backstop to off-shore dollar markets --- template: Outcome .center[] --- # Methods - Qualitative Process Tracing - Analysis of - FOMC meeting minutes from 2007 to 2013 - Elite-Interviews with 12 central bankers, market participants, monetary policy experts - Hypothetico-deductive model, theoretical triangulation (Kay and Baker 2015, 4) --- name: Argument #### Argument: Bricolage --- template: Argument  --- template: Argument ### IPE of Institutional Design --  *Kalyanpur & Newman (2017:366)* --- template: Argument ### IPE of Institutional Design  *Kalyanpur & Newman (2017:366)* --- template: Argument class: center .left[## Claude Lévi-Strauss: A Savage Mind (1966)] .center[] Juxtaposition of modes of human thought: Scientist `\(\leftrightarrow\)` Bricolageur --- template: Argument ## Bricolage: dialectic interplay of agency and structure > The available means are therefore time-dependent because they are “the contingent result of all the occasions there have been to renew or enrich the stock or to maintain it with the remains of previous constructions or destructions” (Lévi-Strauss 1966, 17) > interacting with the tools, the bricoleur also transforms the structural constraint, that is she “build[s] up structures by fitting together events, or rather remains of events” 7 (Lévi-Strauss 1966, 22) --- template: Argument  --- template: Argument  --- template: Argument  --- name: Analysis #### Analysis --- template: Analysis ### The C6 swap line network emerges through design by bricolage --- template: Analysis ### Structure `\(\rightarrow\)` Agency structural disposition of Eurodollar markets generates specific agents and technologies > “the crisis has dramatized the remarkable extent to which financial markets have become globally integrated” (Nathan Sheets in FOMC 2009, 15) -- `\(\hookrightarrow\)` structure produces opposing agencies but only one viable technology; cannot explain timing --- template: Analysis ### Structure `\(\leftarrow\)` Agency Objective of swap lines: >“reduce uncertainty among market participants as to whether and when these arrangements would be renewed” (FOMC 2013, 9) > “as the deadline grew closer, the markets would start to worry about whether the swap-line was going to be there or not” > (Sheets in FOMC 2010b, 16) -- `\(\hookrightarrow\)` management of expectations -- President Kocherlakota: > renewal of a temporal line could be understood as the Fed being “concerned about things”, while with a permanent facility the FOMC “[doesn’t] really have to worry as much about the signaling content of our decision” (FOMC 2013, 12). -- `\(\hookrightarrow\)` Permanent facility once market expectations converge --- template: Analysis ### Means vs Ends: Practices of Bricolage - Experimentation > „I think it will send a good signal […] But I don‘t know for sure. If we do it, we are just going to give it a try and see what happens“ (FOMC 2007, 14) -- - Creative re-deployment > „I think a lot of the programmes that we have are actually open ended. The discount window is open ended in the sense that it‘s limited only by the amount of collateral the banks post there“ (FOMC 2008, 17) -- - Retrospective > „people became more familiar with it and we were able to say: this is necessary“ (I 10) --- name: Conclusion ## Conclusion --- template: Conclusion  --- template: Conclusion - liquidity swap lines not mere functionalist response to problem in off-shore dollar markets (Mehrling 2013, Murau 2018) - *apppear* as functionalist, however bricolage uncovers precise practices and the fragilities entailed (**no rationalist, optimal soution**) - design by bricolage: neither praise for ingenuity (Bernanke, Geithner, Paulson (2019), nor power grabbing (Jacobs, King 2016) --- name: Relevant ### Why is this relevant? --- template: Relevant  *https://www.gfmag.com/magazine/october-2016/have-central-bankers-finally-reached-their-limits* --- template: Relevant  *https://www.gfmag.com/magazine/october-2016/have-central-bankers-finally-reached-their-limits* --- template: Relevant Ontological Claim: Central Bankers not just do bricolage, they are Bricolageurs `\(\hookrightarrow\)` Generalizable claims upon decision-making `\(\rightarrow\)` standing facilities will be introduced when market expectations converge, e.g. standing repo facility -- # Thanks - mathis@oija.de - http://twitter.com/nullnein - http://twitter.com/@LeaFeuDeJoie **From Bazooka to Backstop: The Emergence of a Permanent International Lender of Last Resort** *Central Bankers are Bricolageurs* --- # Additional slides --- ## Hypotheses