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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Why is there increased speculation that America might go into a recession ? If they do will the rest of the world also face downturn?

Recently there has been increasing speculation regarding USA going into recession (since rate hikes can cause recessions): https://www.washingtonpost.com/business/2022/05/19/recession-economy-markets/ ...
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Why has the Yen weakened despite lower inflation?

I have recently wondered about the depreciation of the Japanese Yen against the USD (or any other major currency). Currently, a thousand Yen is at around USD 7,75. This is about about a twenty-year ...
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Savings = Investment. High interest rates stifle investment. High interest rate encourage savings. Isn't this a contradiction?

If savings = investment, then by definition, higher interest rates encourage savings and hence more investment. But when it comes to monetary policy, central banks increase interest rates in order to ...
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With what money does a central bank buy gold?

When a Central Bank decides to increase its gold reserves, where does it get the money to pay for the gold from? How does this vary between countries with different strengths / policies on their ...
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Rigid peg and forex market

If a country's exchange rate is pegged rigidly (for example a currency board), can it continue to trade on forex market? If so, can the rate be different than the peg? If so, is it not a violation of ...
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How do banks trust each other especially in cross-border situations?

Maybe my question is far too trivial for this community. But let's see. I don't have an economic background. I wonder how banks trust each other when money gets transferred from one bank to another ...
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Reserve Bank of India monetary policy operating target

The operating target of RBI monetary policy is to keep weighted average call money market rate close to the policy repo rate. How does this target help RBI achieve its goal of price stability and ...
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How effective are economic sanctions on Russia?

Things like "banning Russia from SWIFT" sound devastating, but then we find out that actually it is a ban on some (not all) Russian banks. So, do the sanctions imposed by the West and the ...
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should I weigh an average net margin calculation of Eurozone banks per number of banks or per asset size to validate parallel trends?

I'm trying to perform a DiD regression analysis in order to evaluate whether bank profitability has decreased with the implementation of a negative interest rate policy (NIRP). The regression is ...
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If interest rates rise, the cost of paying off existing debt for companies will increase, won't this be inflationary?

I am fully aware of the standard logic that interest rate rises lower inflation by slowing investment. However, isn't it the case that any debt that companies have becomes a larger cost and hence puts ...
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Why can't banks print infinite money by running up huge debts at the secondary discount window rate?

Banks in financial trouble can borrow from the Fed at 1% interest. Would anything stop a bank from borrowing $1M every year plus the interest on all prior debt? Since their ability to make interest ...
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The Fed and Raising Interest Rates

Recently the Federal Reserve raised interest rates by 0.25%. It seems to me that in the modern era there is no reason to pick a round number like 0.25%. It also seems to me that they could / should ...
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why is household equity a liability for households

I am currently reading "An introduction to Central Banking" written by Ulrich Bindseil and Alessio Fotia, which is freely accessible here : https://library.oapen.org/viewer/web/viewer.html?...
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Is Bank for International Settlements still providing financial services to Afghanistan?

After the Taliban takeover of Afghanistan in August 2021, most of the major central banks such as the Fed, Bank of England, and Bundesbank froze FX reserves of the Afghan central bank (DAB). As of ...
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What is the specific aim of the Russian Central Bank's decision to hike key interest rate during the Ukraine invasion?

The Russian Central Bank raised their key interest rate to 20% in the midst of economic sanctions in response to the invasion of Ukraine. In the United States, the key interest rate, as far as I ...
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How do USD sanctions on Russia work?

On the 28th of February 2022, the US Government banned United States persons from engaging in transactions with the Central Bank of the Russian Federation. The motive was quoted as "to prohibit ...
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What Happens to Govt Securities on Central Bank's Balance Sheet on Maturity?

To properly clarify the motivation of the doubt think of a hypothetical world when there are no business cycles and Central bank intervenes in the market only to provide enough liquidity to sustain ...
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What is the purpose of central bank selling government bonds besides reducing money supply e.g. to let the public earns more during recession?

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 ...
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How does inflation erode away debt in a practical sense?

Intuitively it makes sense that if inflation is above nominal interest rates, businesses/central banks can erode away their debt. I wanted to understand how it would work practically such as in some ...
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Does debt issued by the ECB have a floating interest rate?

In the news you constantly hear that if the ECB raises interest rates the southern European Countries will go in default. My question: Is this because the interest rate on old debt will increase? Or ...
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Modeling asymmetric effects

I was at a colloquium with the Bank of Canada and the presenter was showing some impulse response functions (IRFs) of rate change effects. Intuitively people tend to borrow more when rates decrease ...
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What are the consequences of an increase in interest rates for States?

As the inflation is high, central banks such as the FED and the ECB are about to raise their rates. One of the consequence is that the stock market is falling and in particular companies having a lot ...
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How leveraged are banks in the United States?

My understanding of fractional-reserve lending is that it allows for banks to only keep a small fraction of raw currency in reserve, and lend out the rest. When this lent out money is put into banks, ...
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How do central banks get the money for quantitative easing?

From the Wikipedia page on QE: Quantitative easing (QE) is a monetary policy whereby a central bank purchases predetermined amounts of government bonds or other financial assets (e.g., municipal ...
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Banking system in countries without their own currency

I am interested in the working of the banking system in countries that don't have their own currency, e.g., Ecuador or Panamá. Can you point me to studies or articles about it? For example, do banks ...
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Are there limitations an what the banks can do with the money they've received from QE?

I'm a math PhD student and have been trying to learn more about the commercial banking system. I've read that Quantitative Easing creates a "dollar prison" and is in fact deflationary but ...
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2 votes
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Can we replace the central bank with a well-programmed cryptocurrency?

Imagine an economy that everyone uses (a single) cryptocurrency as a mean of payment. You could program a cryptocurrency such that the money supply grows at a fixed amount per year, etc. but that ...
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Should governments print money while the currency gets stronger

In a given situation where a local currency becomes very strong compared to other major currencies (like the USD, EUR, etc...), should the government / central bank leverage the opportunity to print ...
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The influence of an increase in ATM's on the demand for central bank money

This is a question posed in Blanchard's book on Macroeconomics. The question is simple. Consider an economy with a central bank (CB) and private banks. The demand for CB money is then determined by ...
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Is new money created when banks buy Treasury Bonds in primary auction?

From my understanding of the current monetary system when a bank issues a loan it is effectively creating money for the receiver of the loan i.e Mortgage. This increases the M1, M2, M3 numbers of the ...
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If repo period is just one day, how do banks arrange the cash to repurchase the securities from the Central Bank?

The RBI (India's Central Bank) website says that "predominantly, repos are undertaken on an overnight basis, i.e., for one day period." So basically, the Central Bank buys securities from ...
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monetary policy reaction function with gmm: optimal lag for instruments

(edited) I am estimating a Central Bank reaction function using GMM using monthly data. Following the literature, I used lagged values of each variable as instruments (are there other feasible options?...
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What would happen if we eliminated fractional reserve banking while expanding the money supply?

In a fractional reserve banking system, banks can lend out more money than they hold in cash. For example, with a 10% reserve requirement, they can lend out 9 times as much money as they hold in ...
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What is liquidity overhang?

I read in an economics article the following: RBI Governor has decided to keep the unwinding of monetary policy gradual, calibrated, and non-disruptive while remaining supportive of the economic ...
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1 answer
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Any support for the idea that QE is employed to prevent the money supply from contracting

It appears to me that QE has been employed after the collapse of housing bubbles - both in Japan in the early nineties and in many other countries around 2008. During a housing bubble there is a high ...
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Do governments have to pay interest on government debt held by the central bank?

Through open market operations, the central bank may buy government debt to increase the money supply. Does the government need to pay interest on the debt held by the central bank, or does the debt ...
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Why are so many economists critical of central banks manipulating markets and creating artificial demand?

When demand for liquidity outstrips supply (rate increase in a credit crunch) then the law of supply states that quantity supplied also increases with price (rate decrease provided demand stays ...
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Why do we need independent central banks?

Why should we have an independent central bank? Why can not the govt itself do the job that central bank does? One logic people give is that governments are elected for short term and may take ...
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Why is IOER so much higher than short term Treasury yields?

Interest on excess reserves is currently at 0.15%, but the yield on 1, 2, 3, and 6 month Treasury bonds are all only 0.05%. Why is this the case? Shouldn't IOER be about the same if not lower than the ...
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Did Capitalism and Adam Smith Support a Central Bank?

Does Adam Smith and Capitalism support a Central Bank/Federal Reserve? I am trying to read through the book "Wealth of Nations" to understand. Having a central/regulatory figure dictate ...
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Is The Money Masters (1996) correct in its main thesis?

The Money Masters is a 1996 documentary film that discusses the concepts of money, debt, taxes, and describes their development from biblical times onward. Its main points were summarized by a ...
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How are sovereign bond interest rates determined?

They are a lot of questions about the price of a bond or its yield. Why do people buy negative interest rate bonds? How did Portugal draw down their interest rates on pubic debt? ... and so on Mine ...
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Why are the financial intermediation theory of banking or fractional reserve theory of banking still accepted despite evidence to the contrary?

In most textbook economics I came across the financial intermediation theory of banking and the fractional reserve theory of banking are presented as theories as how money is created. However there is ...
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Data on inflation target on different countries around the world

Does someone know if there's a page, like a "global bank" online page, where one could see the inflation target for different countries? For example, in x country, for x' year, the inflation ...
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4 votes
2 answers
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Is modern monetary theory sustainable?

I am looking around at a lot of the central banks around the world (primarily ECB, Fed, and BOJ) and they all seem to be simply printing their way out of any issues with their economies. As far as I ...
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Seemingly contradictory relationship between bond yields and economic growth?

I have a few seemingly contradictory ways of viewing the relationship between economic growth and bond yields: Reductions in FFR are largely induced by IOER. Since IOER and bonds are competing ...
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0 votes
1 answer
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Why would foreign asset purchases by PBOC temper yuan appreciation?

Suppose the PBOC buys a bunch of dollar-denominated bonds, using its dollar reserves. All else equal, what effect should this have on the yuan-USD exchange rate? And why? It amounts to trading non-...
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What is the mechanism for when the fed purchases a gov't or corporate bond from a non bank?

My understanding is when the fed buys a bond from a bank they use bank reserves (bank reserves are swapped for a bond). How does the transaction differ when a non bank (ex hedge fund) is involved?
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Have Bernanke, Geithner, Paulson, or the Fed ever responded to Laurence Ball's accusations about Lehman?

Ben Bernanke, Hank Paulson, and Timothy Geithner have repeatedly stated that they wanted to save Lehman Brothers but couldn't do so legally because Lehman didn't have enough collateral. Laurence Ball ...
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-1 votes
3 answers
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Are stimulus checks created out of thin air? [closed]

My question is regarding the checks which the US government has sent out during the pandemic. Below is a chart of M2 money supply increase as a result of it: It is also said that 40% of all the m2 ...
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