Leo Krippner, Reserve Bank of NZ (RBNZ) senior adviser and former AMP Capital NZ head of investment strategy, has won a top global award for influential work modeling yield curvature in unconventional monetary times.
Krippner, who resigned from AMP nine years ago to join the RBNZ, picked up the ‘Economics in Central Banking Award’ from the UK-based Central Banking Publications.
The award is doled out for the “the most significant contribution to economics within the field of central banking,” according to the publisher. Previous winners include Stanford University Professor John Taylor and Bank of International Settlements economist, Claudio Borio.
Krippner’s ground-breaking work enables central bankers, economists, investors and other interested parties to estimate a more accurate level of monetary stimulus when interest rates butt up against the ‘zero bound’.
Essentially, his analytical technique – which adapts and makes more practical an earlier proposal by Nobel Prize winner Fischer Black (of the Black-Scholes option-pricing fame) – provides a ‘shadow yield curve’ that can dip below the x-axis, taking into account off-rate factors such as quantitative easing and ‘forward guidance’.
“If you just looked at the Fed funds rate [traditionally used by markets for many financial settings] when it’s at or near zero there is no information in it,” Krippner said. “My shadow curve can go negative and show the effects of monetary easing beyond just the Fed funds rate.”
Indeed, the shadow curve for US monetary conditions post-GFC at one point indicated effective interest rates of about -5 per cent, although the measure now is back in zero territory.
Krippner said the analysis suggests unconventional monetary policies have been effective tools with those countries – such as the US and UK – where quantitative easing policies were introduced early and aggressively following the crisis now in economic recovery mode.
“But the economies of Japan and Europe, which were slow to begin quantitative easing, are still at very negative levels,” he said.
Nonetheless, Krippner’s 2012 RBNZ paper laying out the shadow curve proposal notes: “… the economic stimulus from lowering the shadow policy rate from a positive level (conventional easing) is greater than when lowering it from a negative level (unconventional easing).”
When monetary policy rates rise above zero, the traditional yield curve converges with its shadow self, he said.
While NZ has yet to see monetary conditions fall below zero, the RBNZ uses Krippner’s research to model currency movements.
The Central Banking website cites a European Central Bank economist declaring: “Krippner’s work was pivotal for a new literature branch that looks at yield curve-based metrics of the monetary policy stance at times when standard monetary policy is constrained by the lower bound.
“His work has been highly influential in the academic term structure literature, and it has been especially valuable for central bank departments that focus on modelling and analysing the term structure from a monetary policy perspective.”
Krippner will receive the award – understood to be in the form of a plaque – at a possibly glitzy ceremony in London on March 23.