Correcting the Basket Weavers of MIT on the ECB actions in 2011

Did the ECB raise its target rate in 2011?

ECB Target Rate

It sure did, your can see that in 2011 they raised the target in two quarter point steps. Why? The effective market rate was up. You can see it rising starting in late 2010, so the ECB simply announced that it had risen.  Did the ECB do any open market activities?

Euribor, the ECB effective funds rate

ECB debt purchases

Yes, you can see the ECB began buying government August of 2011, a quarter after it drew a straight line called the target. So what was the target rate about? Nothing, really. It is mainly a straight line the MIT Basket Weavers use to mix up the sequence of events, reverse causility and avoid work.  I do the work. What about deposit and lending balances?

ECB deposit facility

Here they are. And we see that deposits rose step for step with lending. The ECB was certainly taking some short term losses, and that was inflationary.  Further analysis shows that Italy took the brunt of the inflation, and Germans too the burnt of the gains from ECB operations. A little arbitrage between German investors and Italian corporations would have restricted the flow of consumer good to the Italian consumer.  That would have raised consumer prices, driven the Italian PE ratio up, making a tidy profit fot the hedge funds.  The Italian government, in its infinite wisdom, increased it supply of debt to the ECB. The net result, a sustained 3% inflation rate through 2012 and part of 2013 for Italy.

Do the work, using the MIT method of picking a convenient market, then making up stories of cause and effect is not correct. This is not chartology, this is finite network theory of input and output flows and follows the probability of a martingale process.  It is all workable by using the proper Brownian motion driver as the martingale adaptation process for the standard DSGE.