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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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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What are the drivers of the $4trln increase in m2 from Feb 20 to Jan 21?

M2 has increased about 4 trillion from Feb 20 to Jan 21. I know there are different theories on why that is (qe, unemployment benefits, stimulus checks, businesses drawing down on lines of credit) ...
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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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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 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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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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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 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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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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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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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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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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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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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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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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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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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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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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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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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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ECB bond buying from national banks, what are the national banks expected to do?

The European Central Bank announced plans to buy government bonds from national banks. Quantitative Easing, 60 billion euros a month. Although ultimately I am trying to make a decision on what this ...
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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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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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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 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 money in circulation a liability of the central bank?

We know that the money today is fiat currency, that it is money because the government says it's so. So when new money is printed or loaned out to the commercial banks by buying treasury bonds, ...
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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 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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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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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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Limits to Quantitative Easing Programmes

I have been reading recently on the quantitative easing programmes by the ECB and the BOJ, see http://www.cnbc.com/2016/04/07/what-the-bank-of-japan-boj-will-do-now-that-negative-rates-have-...
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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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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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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 ...