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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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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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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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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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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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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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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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 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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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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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 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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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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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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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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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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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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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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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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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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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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