Questions tagged [central-banking]

In reference to activities undertaken by the central bank mainly to influence nominal interest rates, money supply and, eventually, price levels.

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37 views

How buying bonds indirectly from the government prevents the central bank from financing government deficit?

From Krugman's macroeconomic textbook (highlighting is mine): "In an open-market operation the Federal Reserve buys or sells some of the exist- ing stock of U.S. Treasury bills, normally through ...
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What is the difference between a bank's Treasury department and ALCO?

I know that the treasury manages and controls the bank's capital. While the Asset-Liability Committee deals with the assets and liabilities in order to stay solvent, right? What are the similarities ...
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Federal Reserve OMO money goes to the Treasury? [duplicate]

If Federal Reserve performs open market operation by selling government securities then Fed gets money, who keeps that money? Does it go to Federal Reserve Deposit or the department of Treasury or ...
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Why does the Fed feel the need to reduce its balance sheet?

Why does the Fed feel the need to reduce its balance sheet? What is the problem with the Fed having a large balance sheet long term? What would happen if the value on the Fed's balance sheet ...
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In credit easing, how do central banks avoid allegations of unequal treatment?

In credit easing, central banks purchase private assets such as corporate bonds. How do central banks choose which corporate bonds to buy? If the central bank buys bonds of one company but not those ...
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When the federal reserve buys bonds or other assets from banks, do the banks make a profit?

My understanding is that the federal reserve is injecting money in the market by buying bonds and debt from banks. Do the banks make a profit on the sale of their bonds or corporate debt to the feds?...
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How collateral easing measures complement PELTROs or TLTROs?

ECB introduced Collateral easing measures on 8th April to complement its already existing refinancing operations. Do banks have to keep some collateral with ECB while borrowing? This is when they are ...
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52 views

How do debt-free governments control the money supply?

From what I read in my introductory macroeconomics textbook, central banks can control the money supply by selling government bonds in the market (decreases money supply), or by buying government ...
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Who holds the Reverse Repo and Repo respectively in a Repurchase Agreement?

According to investopedia.com in this definition A reverse repurchase agreement, or "reverse repo", is the purchase of securities with the agreement to sell ...
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Are FedWire transfers and volume tracking exchanges of reserves between banks that have accounts at the Federal Reserve?

Looking at Fedwire® Funds Service - Monthly Statistics it appears that these transactions are between banks but I'm trying to confirm is whether the stuff they are exchanging is classified as reserves....
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Does a rate hike by the Central Bank increase or decrease inflation?

Mainstream economic theory tells us that, in order to decrease inflation, the CB increases its rates so as to decrease loan creation which should decrease Aggregate Demand and thus lower inflation. ...
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Why is it that when a bank provides loans to people, it is considered a 'liability' on the bank's balance sheet? (Khan Academy Video-Related)

I am watching the Khan Academy Banking Video Series: (https://youtu.be/On3c86V5A_E) . (https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/money-and-banking/banking-and-...
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How a countries interest rate (official cash rate in NZ) and inter-bank network determines retail interest rates?

In New Zealand, there is the OCR, which is the rate at which retail banks borrow from the central bank (https://www.nzherald.co.nz/nz/news/video.cfm?c_id=1&gal_cid=1&gallery_id=213767) ...
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How yield rates influence the “cost of borrowing” for borrowers

I am currently learning about quantitative easing, and I am having trouble understanding yield rates and how that influences the "cost of borrowing". This is the resource I am using. The lecturer ...
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Would saving money outside of banking system be able to reduce monetary base?

First of all, here is definition of monetary base taken from Investopedia A monetary base is the total amount of a currency that is either in general circulation in the hands of the public or in ...
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Ambiguity on a relation between inflation, interest rates, and central banks

When working on inflation, central banks, interest rates etc., I summarized the info in various sources as follows: When there is not enough money in the economy system, the money in circulation ...
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Do (any) governments or central banks have an explicit or econometrically probable policy to “prop up” stock market prices?

This assumption (that governments [in the a broad sense of the term] prop up stock prices deliberately) has been taken as a given/assumption in another question here. Is there evidence that they ...
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How does the Federal Reserve unwind the asset purchasing scheme announced in response to the 2020 Coronavirus Pandemic?

On Monday, 06 April, 2020 the Financial Times reported that the Federal Reserve balance sheet could increase to $9 trillion. This is partly due to the myriad of initiatives, some new, to protect the ...
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Is there a clear timeline of ECB/Eurosystem's changes to the defintion of M3 (with regard to repos)?

I found that circa 2012 the ECB/Eurosystem changed their definition of M3 to exclude at least some repos, which previously were included. According to a 2014 Bundesbank publication, the change ...
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Bank of Canada operating band

I read the following quote about the Bank of Canada's "operating band" for inducing target overnight loan rates: ...
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Applying Econometrics to Monetary Economics

I've been given a problem in which I am told that GDP is a function of the supply of money, prices and demand, $$Y = (M/P)^\delta$$ Taking logs, $$\log(Y) = \alpha + \beta \log(m - p) +u$$ ...
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What is the difference between the discount window and Fed repos?

I'm wondering how the Fed's discount window differs from it's involvement in the repo market. To the best of my knowledge, both are tools used to conduct monetary policy and both are also short-term, ...
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Why do banks keep vault cash instead of depositing all reserves at the central bank?

In what way to commercial banks benefit from keeping some of their excess reserves in the vault as opposed to depositing all of their excess reserves with the central bank (assuming the central bank ...
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Why don't central banks just donate money to their poor citizens, rather than QE?

Why don't they prioritize paying their citizens directly (Americans in this case) over providing liquidity, repo, buying bonds, and lowering interest rates? I have a BA in Economics, so hope this isn'...
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Can quantative easing be summarized as “The state prints cash to pay its debt to private sector”?

I find that most sources describe quantitative easing in an overly complicated way that obscures what it basically means. As far as I understand a central bank is a public entity owned by a state, ...
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Central banking in Saudi Arabia

People say that central bank with autonomy is needed to avoid political business cycle but then how do we explain the existence of central bank in arab oil exporting countries like saudi arabia where ...
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China benchmark rates and Shibor relationship (chart)

I made the chart below for an assignment on People's Bank of China monetary policy during the financial crisis. The problem is that it got me very confused about the relationship between these ...
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Why did the central bank of China raised the amount of repos during the financial crisis?

According to the PBOC monetary reports, the total amount of repos conducted went from 1.27 trillion yuan in 2007 to 3.3 in 2008 and further increased to 4 trillion in 2009. It wasn't until 2012 that ...
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central banking using the term reserve

The central bank of united states is called federal reserve and central bank of india is called Reserve bank of india. What does the term reserve in central bank mean??
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How to calculate bond price and the relationship between bond price and repo rate?

Suppose that there is a gilt Tr 7.5pc '06 in 2006 with interest yield 7,32% and redemption yield 4.31%. How can I compute the price of this gilt per 100 face value. The problem is that the numbers I ...
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World GDP increase

How does the world GDP increase? The world GDP tends to increase on average every year (exception being years of global recession). If in year x the world GDP was 100 million dollars, how can the ...
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56 views

How does an increase in the minimum reserve requirement affect the monetary base?

Monetary base is defined as currency+currency held by banks+deposits of banks at central bank. We assume that the current reserve is below the minimum reserve requirement. Which component of monetary ...
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Relevance of central bank

Why do we need central bank ? surely the government can print currency and regulate banks by conducting audits through finance ministry and so on. Why do we need central bank ?
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What does it mean to “kickstart the economy”?

This answer claims that: the central banks have been lowering and lowering [interest] rates, desperate to kickstart the economy, but it's not been working What does "kickstart the economy" mean ...
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What are the indices used to determine the quantity of Euro permitted to be printed by an individual National Central Bank of the Eurosystem?

I learnt that the European Central Bank manages the printing of currencies in by delegating the printing to each participating members of the Eurosystem. What are the indices used to determine the ...
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What happens when a country's central bank significantly reduces the available currency?

The central bank of Iraq has significantly reduced the note count from 55 Trillion to 5 trillion. Logic would dictate that when a supply is reduced the value of the item that has been reduced will ...
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bank lending channel and bank capital channel: mechanism step by step

In any definition of these concepts, I miss the first step: how exactly does expansionary or contractionary (rate changes, req. reserve changes, ... ) monetary policy affect bank deposits and bank ...
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What justifies the authority of a bank to create money when they make loans?

This is somewhat of a political or philosophical question. As explained by the Bank of England and elsewhere, the majority of broad money is created by credit to banks' accounts when they make loans. ...
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Why is there a big change in the money supply at the beginning of each month?

I was watching Argentina's daily change in monetary base for a selected period and there is a clear spike at the beginning on each month. Then during the month it slowly goes down until reaching ...
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Decreasing interest rate effect on economy

Central banks decrease sometimes the interest rate by saying this has positive effect on the economy and the development of countries. One of the reasons is that it can be easier to do investments (...
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Do central banks pay their staff and other costs with money that they create?

Central banks like the Bank of England and the Fed must cover their costs. I was wondering how they do this? I can think of two possible mechanisms: Government allocates money from its tax revenue to ...
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How does a government implement negative interest rates in practical terms?

We usually understand interest rates from a very simple story "you went to a bank ans asked to borrow money, the bank agrees but requires you to return an extra amount be the end of the loan term, ...
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The centralized shift from barter to currency economy

Suppose some ancient king of small bronze age city-state wants to introduce universal currency instead of barter that is currently in overwhelming practice in his kingdom. In order to smooth the shift,...
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Question on Central bank loss function interpretation

How do you interpret this central bank’s loss function: $$L(\hat x, \pi)=\alpha \hat{x}^2+(\pi-\pi^T)^2$$ where $\alpha >0$ and $\hat x$ is output gap. Phillips curve is $\pi = \theta \hat{x}+\...
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Central bank loss function (I did a solution, but it doesn’t totally make sense I guess)

I have question on central bank loss function. We know that the central bank loss function is $$L(\pi, \bar{Y})= (\pi- \pi^e)^2+\beta \bar {Y}^2$$ And we know that fisher equation is $$i=r+\pi^e$$...
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Initial creation of reserves

I am currently reading the book "Where does money come from?" which is co-authored by Richard Werner after I took the "Money and Banking"-class in coursera by Perry Mehrling. There are certain ...
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When the Central Bank sells a bond, where does the money go ultimately?

As the accepted answer points out, the premise of my question was flawed. Thank you for the dispelling of my wrong assumptions. The original question follows. There are two related questions (and ...
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What does the Bank of England do with the interest it receives?

Seeing as the Bank of England is free to create money, is the interest it receives meaningful? What does the bank do with it?
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What happened to the money multiplier after QE?

QE meant that the monetary base increased dramatically, yet we don't see such a large reaction in money supply (I am thinking of M4 for the UK) nor in inflation. Why is this money not being lent out? ...
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How is seigniorage redistributed in the Eurozone?

An ECB page notes that: As euro banknotes travel freely across borders, at any one time the number of banknotes in circulation registered at each national central bank can vary enormously. The ...