0
$\begingroup$

I have learnt that such tool is usually to reduce money supply so as to close the inflationary gap.

However, from my daily observation, central banks sometimes also sell bonds during recession. Is such practice supposed to let people earn some interests?

Or is this only a tool to balance other expansionary monetary policies?

Improve this question
$\endgroup$
1
  • 4
    $\begingroup$ You say '..from your daily observation...'. Can you give some references? $\endgroup$
    – Dayne
    Feb 24, 2022 at 0:40

1 Answer 1

Reset to default
1
$\begingroup$

Central banks buy and sell bonds to conduct monetary policy. There is no central bank with a mandate to "let people earn some interest." In addition, there is no shortage of bonds on secondary bond markets. Anyone wanting to buy bonds to "earn some interest" can buy the bonds from someone else.

Improve this answer
$\endgroup$
2
  • $\begingroup$ There is actually frequently a shortage of safe government bonds. Otherwise the yield would not stay negative for prolonged periods of times. For example the ECB changed collateral rules several times (I can think of 2016, 2020 and 2021, potentially more often) to accept more cash to lessen the evident shortage of government bonds in the euro area. Also, most European banks and corporates receive (hence pay) negative interest on deposits. $\endgroup$
    – AKdemy
    Feb 24, 2022 at 21:38
  • $\begingroup$ shortage occurs when quantity demanded exceeds quantity supplied. I cannot find any article only saying that happened to bonds for any significant amount of time. Price change is what prevents the shortage from happening $\endgroup$
    – csilvia
    Feb 28, 2022 at 22:34

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge that you have read and understand our privacy policy and code of conduct.

Not the answer you're looking for? Browse other questions tagged or ask your own question.