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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45 views

Who are central banks buying assets from when performing QE

I have been doing some research on QE and have come up against one issue the answer to which appears to vary according to who you read. Some people say that central banks are buying financial assets (...
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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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64 views

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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184 views

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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48 views

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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External Commercial Borrowings in Indian Context

I was trying to understand ECB recently and while browsing through the RBI official page I have found that ECBs cannot be used for a) Real estate activities. b) Investment in capital market. c) Equity ...
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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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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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50 views

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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51 views

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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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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Why would investment banks not care about their risky exposure to subprime mortgages?

At the end of The Big Short, Steve Carell's character asserts that the banks weren't acting stupid, and that they knew they were getting a bailout so they just didn't care. Why wouldn't they care? ...
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Target2 Balances at the ECB-will it lead to the collapse of the Euro?

Target 2 imbalances within the Eurosystem have continued to grow during 2020. Currently Germany is owed Eur 1TN by the other countries, principally Italy and Spain. If Germany at some point insists ...
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Why would a digital Yuan (or some other national currency turned into a CBDC) "help fast-track international settlements" in that currency?

I'm trying to understand the basis of this claim As the main mode of transaction in the world's second biggest economy, China's currency should be a natural contender for the spot. However, the U.S. ...
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Difference between 'Internal Debt' and 'Market Loans' in RBI public debt statistics

While perusing RBI public debt statistics, I am at my wits end in trying to figure out the table headers. I am unable to sum up any combination of them to get any other. Specifically, what is the ...
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58 views

Can the US government selectively cancel debt held by the Federal Reserve?

Sort of a follow-up to this question on the Politics SE, which asked about the US government cancelling debt held by China. From the answers to that question, this kind of selective default is not ...
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Why is market absorption of issued US Treasury Bonds (with the Fed purchase plan) a problem?

Financial market reports suggest that there are uncertainties about the Federal Reserve's ability to absorb new US Treasury Bonds issued in larger quantities to support the US government's growing ...
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Where can I retrieve a complete history of macro economic data annoucements?

I'd like to get the complete ( well at least the last 20 years) history of economic data announcement calendar firstly for US and secondly for G5 countries. I have found many websites that propose the ...
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Are there western governments that don't have to borrow in their own currency?

Are there any western and/or democratic countries where the central bank buys all government debt, interest free, directly from the treasury? I.e. are there any such countries where government ...
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Can banks 'create' money on their own or do they need help from other banks?

My current understanding of the banking money multiplication process goes as follows: Alice comes along and deposits 100 cash into Bank A. Bank A gains 100 in vault cash (reserves) as an asset and 100 ...
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Do open market operations permanently increase the money supply?

Suppose the Fed buys 1000 dollars worth of T-Bills in the open market to try decrease interest rates and increase the money supply. It does this by printing money and electronically increasing the ...
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Exogenous Money Supply

In the first 10 seconds of the following video: https://youtu.be/anZ58gZcxqk, A claim is made that in the Exogenous Money Supply Model, Money Supply is not determined by interest rates. The person ...
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Is it theoretically possible for a singular national currency to exist under a free banking system?

Free Banking is a proposed monetary system, usually by Austrian Economists, as an alternative to the prevalent Central Banking system. Under this arrangement, commercial banks would issue their own ...
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What is the point of monetary policy if most monetary variables are determined by non-monetary factors?

Monetary policy today is largely focused on setting interest rates in order to reach an inflation target / value of the currency. Interest rates are used to affect inflation by changing the demand and ...
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Railway Mania in England

William Quinn et al. in their Boom and Bust (Cambridge University Press) describe the causes of the Railway stock market bust in 1840s England. The outflow of gold due to problems with the harvest ...
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How does QE effect the collaterals?

For instance, the ECB accepts green bonds as collateral. And also they are more likely to include green bonds in a QE program. Does this face make a green bond more valuable? How would it work in a ...
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Fractional Reserve Banking

Highly contrived example with 3% reserve ratio: ...
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Will banks in the US continue to offer CDs?

Earlier this year, the Fed abolished the reserve requirement. My understanding was that the motivation for banks offering CDs was because the Fed didn't impose reserve requirements on CDs, so banks ...
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How would privately minted coins enter circulation?

I read a great article about private minting in early America that talks about some of the private minters whose copper, silver, and gold coins were widely circulated throughout the country without ...
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Why would a CBDC (Central Bank Digital Currency) be good for the economy?

I've read about CBDC, how it could be a cryptocurrency like digital payment system, that could replace fiat currencies. But what I don't get is what value would it give to the economy? Someone who ...
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Why do banks take deposits if they do not need them to make loans?

I have taken some economics courses in university, where I was introduced to fractional-reserve banking. From my understanding, in fractional-reserve banking, the bank has motivation to encourage ...
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Must a EU bank pay 500€ to the ECB, if I deposit 100k€ into that bank?

Given that the current ECB reserve rates are negative (-0.5%), I suspect that if I deposit 100k€ into a EU commercial bank, that bank must in turn deposit my money at the ECB and pay 500€/year to ECB (...
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How does the U.S. Fed printing money result in a debt for future generations?

I'm unclear when I see news articles about how the U.S. Treasury will borrow $2 Trillion in the second half of 2020, why would the Fed printing money result in a debt for future generations? I can ...
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How does the Fed's stimulus push stocks markets higher?

I read that the Fed’s stimulus last March has contributed to a spectacular rally in stock markets. And indeed S&P500 has increased a lot since March. But how does the mechanism work? How does the ...
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Why is the ECB asking EU banks to hold off on buybacks?

In the wake of the Covid-19 pandemic, the ECB requested EU banks not to pay dividends as well as refraining from buying back their own shares until the end of 2020. And that even if they had already ...
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What measure of unemployment is used by central banks to find out whether the rate of unemployment is below the natural rate of unemployment?

Having an unemployment rate below the natural rate of unemployment (NRU) leads to wage inflation and a reduction in productivity. Seeing the consequences of that, and knowing that one of the roles of ...
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How can non-US banks issue USD loans?

I understand, commercial banks are entitled by the Central Bank to "create new money" when they issue a loan and correspondingly "destroy the money" when the loan is paid back (...
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Are quantitative easing and helicopter cash really different tactics? And how does QE relate to Modern Monetary Theory?

I've been trying to get a clear understanding of exactly what economists mean by Quantitative Easing (QE). It seems to me that different people mean different things by it. I find simplistic analogies ...
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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? [closed]

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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