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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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 does a central bank create the money used for quantitative easing or lowering the value of their currency?

Up until last week, the Swiss central bank used Francs to buy Euros, in an effort to lower the value of the Franc; today the European central bank announced that it would use Euros to buy bonds in ...
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Is it possible to repay the world debt? If not, why do we care?

Let me apologize if my questions sound stupid to experts. I have no training in economics. I am just curious and puzzled. I couldn't find any answer to the questions below. As far as I have ...
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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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Who regulates the balancing of the books for commercial banks? How? Is it public information?

I've just read Money Creation in the Modern Economy, an article published by the Bank of England. This article brings about a lot of questions in my mind. This article talks about money being created ...
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Why hasn't Quantitative Easing surged inflation, or caused hyperinflation?

Quantitative Easing (QE) is the buying of bonds and other financial assets by the Central Bank with high-powered money, or money created by the CB for this purpose. Isn't this ad-hoc creation of ...
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37 views

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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Why is national debt bad if the central bank can keep buying bonds?

When I read about national debt, it's usually about how debt is bad because with too much debt, debtors would demand higher interest rates. Eventually the government can't pay the interest, defaults, ...
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Why does any treasury / central bank hold gold?

I know the US treasury is slowly selling its gold reserves, but what is the actual mission and purpose when it comes to the holdings? What is the reasoning behind the slow rate of liquidation? I have ...
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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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Capital flight and interest rates

I am currently reviewing some stuff on capital flight and self-fulfilling crises. In this scenario, investors generally think that a low availability of reserves could imply that the central bank ...
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175 views

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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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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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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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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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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1answer
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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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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 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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How have central banks been injecting currency after crises since 2007?

In an article by Jean-Michel Naulot about the 2007–2008 financial crisis, I read (my translation): Although central banks had an exemplary reaction at the time of the [2007–2008] crisis, they ...
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How do central banks earn profit?

I thought of Central banks as the regulators of financial markets. But surplus reserves of some Central banks surpass giant corporate companies. Please explain me how do they manage to make profit in ...
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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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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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Why do many countries hoard gold bars?

In my country, the only legal way to sell a gold bar is to sell it to the central bank. What are the reasons why some countries hoard gold bars?
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Isn't the liquidity trap about real interest rates?

Here is a so-called thought experiment. Suppose the inflation rate is negative, the nominal interest rate slightly negative, and the real interest rate positive (call it $r$). I think people would ...
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Why currency purchasing power is linked to confidence in central banks

From the New Statesman, http://www.newstatesman.com/politics/economy/2016/02/coming-storm, "Ever since the collapse of the Bretton Woods system of pegged exchange rates in 1971, the sole guarantee ...
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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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How is monetary policy sustainable, or even fair, in the current economy? [closed]

I've just read Money Creation in the Modern Economy, an article published by the Bank of England. I'm trying to wrap my head around this from multiple points of view, since it brings about a lot of ...
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Did the robbers from Money Heist real steal noone's money?

Money Heist (original Spanish title: La Casa de papel) is a Spanish TV show about a bank heist. From Wikipedia (bolding mine), In Money Heist, a mysterious man, known as "The Professor", is ...
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Why does the European Central Bank use the 5y5y rate to measure inflation

I cannot understand why the 5y5y swap rate measures inflation. I can see how the floating rate somewhat measures the rate of interest rates which are related to inflation. However I cannot understand ...
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How do people check or trust that central bank is not cheating? [closed]

How people can be sure that somebody, cooperating with central bank (or working in it), is not creating money in digital or paper form for themself, so that nobody else notices it?
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Why did the Swiss National Bank abandon its currency peg so suddenly?

There are many theories about why the Swiss National Bank (SNB) abandoned its currency peg a few days ago. My question is more specific: why did they make the change so sudden? Why not reduce the ...
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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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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 did the Swiss National Bank use to purchase EUR while pegging the Franc to the Euro?

To peg its currency (CHF) to the Euro (EUR), the Swiss National Bank (SNB) made purchases of EUR to the tune of several hundred billion. By reducing the supply of EUR, the SNB made the EUR relatively ...
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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 ...
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Why are the Fed's goals often described as the “dual mandate” and not the “triple mandate”?

The Federal Reserve Act Section 2A states: The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit ...