Questions tagged [monetary-policy]

Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency. Further goals of a monetary policy are usually to contribute to economic growth and stability, to low unemployment, and to predictable exchange rates with other currencies.

Filter by
Sorted by
Tagged with
0 votes
0 answers
20 views

Maximising social welfare in time inconsistency

I have solved a number of issues that have a loss function which I need to minimize subject to the Philips curve. I was wondering if anyone knew the method for solving this model generally, to acquire ...
0 votes
0 answers
12 views

Can the Fed help with the Debt Ceiling by forgiving SOMA bonds

There have been previous questions on here discussing whether the Fed and Treasury together could agree to cancel some of the bonds in the SOMA portfolio. Previous conclusion was that this would not ...
  • 1,035
-5 votes
0 answers
27 views

can anyone do part c on the surface it looks very simple [closed]

This is a question I have found hard can anyone complete
3 votes
0 answers
30 views

Stationarity concerns in typical monetary VAR

In monetary economics, I've seen the following 4-equation VAR with log industrial production, log consumer price index, federal funds rate, excess bond premium (a la Gilchrist and Zakrajšek) what ...
  • 171
2 votes
0 answers
64 views

Understanding the terminal condition in the Taylor rule

I am currently reading this summary of various theories on how central banks control inflation. However, I got quite confused in section 3.2.4. Here is the context. Suppose we have a log-linearized ...
1 vote
1 answer
23 views

Do U.S. Fed Interest Rate hikes and bond yields have a causal effect on each other?

I understand that there is a strong causal effect between U.S. Fed rate hikes or decreases on U.S. bond yields. But does the relationship also go the other way, e.g. U.S. Fed hikes/decreases in ...
3 votes
1 answer
111 views

Open market operations vs quantitative easing

I’m a little confused about the distinction between open market operations of a central bank and quantitative easing/tightening. My textbook essentially defines both as instances where the central ...
  • 336
1 vote
1 answer
23 views

How do higher debt-servicing costs cause financial crises?

I want to understand the context of an article (Economist, Finance and Economics section, Oct 28th, 2022) Bruno Le Maire, France's finance minister: "Money is no longer interest-free in the new ...
  • 13
1 vote
1 answer
52 views

How do changes in US government bond yields impact the USD exchange rate?

I would like to understand how changes in US government yields impact the USD exchange against other major currencies, eg. the Canadian dollar or the yen. My question assumes that the bond yields ...
2 votes
2 answers
79 views

Why do monetary authorities (e.g., central banks) aim to impact "short-term" interest rates? Why not also long-term interest rates, or both?

When the Fed or a central bank changes interest rates, this impacts short-term rates first and foremost. But why is it that short-term interests are impacted as opposed to short- AND long-term, or ...
1 vote
1 answer
29 views

UK gilt yield melt up - fiscal dominance - preferences versus constraints

In 1962, Milton Friedman dismissed the notion of "central bank independence" as a polite fiction, saying "it would not survive the first real conflict with government." Since then, ...
8 votes
4 answers
5k views

Can someone explain why sterling-dollar parity is bad?

Please forgive the probable naivety of this question. I am not an economics student I am just trying to understand the currency fluctuations that are currently occurring with GBP as a result of our ...
0 votes
0 answers
18 views

Impact of China and European Union on Canadian Inflation

I'm currently working on a project where I'm trying to determine the impact of the European Union and China on the Canadian economy, specifically, the inflation and policy rates for the next 2-3 years....
  • 173
1 vote
0 answers
54 views

What is the effect on shelter prices of raising interest rates?

In the UK, a rise in rates causes a rise in mortgage repayments. It can lead to landlords raising rents due to margin pressure, if their mortgage is not fixed or is close to the end of its fixed ...
0 votes
0 answers
51 views

Special Repo Rates below General Repo Rates

I've been hearing more and more about the divergence between "special" repo rates, where a specific security is posted as collateral, versus "general" collateral rates, where a ...
  • 53
5 votes
1 answer
579 views

Why doesn't conventional monetary policy involve long-term interest rate targets?

Another way to phrase my question: why doesn't conventional monetary policy include manipulation of long-term interest rates? This question might sound "weird" at first glance, but please ...
  • 291
3 votes
1 answer
41 views

Does having a dual mandate erode central bank independence?

To begin with, CB (central bank) independence is defined as not being subject to government influence. If CB only cares about inflation, it is easy to be independent. If CB also needs to guarantee ...
  • 291
1 vote
1 answer
139 views

How the fed influences treasury rates through open market operations

Lower yields through open market operations When the fed wants to put downward pressure on treasury rates, one tool it can use is open market purchases of the tenor it wants to push yields down on. ...
  • 53
1 vote
1 answer
47 views

What were the benefits of creating ON RRP (versus expanding the availability of IOR)?

I'm not understanding why the Fed decided to introduce their Overnight Reverse Repo Facility (ON RRP). From the St. Louis Fed, it helps to provide a floor for the Federal Funds Rate (FFR), a market-...
1 vote
1 answer
32 views

What is the purpose of forward guidance during rate hikes?

It seems the primary purpose of forward guidance is to stabilize long term interest rates, even when the Fed has only control over short term rates. It is especially useful for when the BOJ and Fed ...
  • 228
1 vote
0 answers
40 views

How is a central bank able to control currency supply in an economy which has other banks and non-physical currency?

As I understand, in most economies, the central bank is supposed to be in charge of monetary policy, which in part means that they are supposed to be the only authority which can increase the amount ...
2 votes
0 answers
68 views

Romer & Romer shocks update

I'm wondering if any researcher has tried to update the Romer and Romer monetary shocks dataset until the most recent period. The only thing I've seen in this respect is the below reference (but there ...
  • 21
3 votes
0 answers
25 views

Is there alternative to the monetary tighetning when the inflation is caused by scarcity (supply-side shocks)?

Current economic crisis is created by sharp reducing shocks to the supply side - bad economic weather, political restrictions to the trade, service availability reduction in the transportation sector. ...
  • 395
0 votes
0 answers
10 views

Contractionary vs Expansionary

If an economy's real trend growth rate is 1.0% and the target inflation rate is 2.0%, a central bank interest rate of 2.5% would most likely be described as... Expansionary?? As I understand it, a ...
  • 101
2 votes
1 answer
54 views

Federal Funds Rate vs Interest on Reserve Balances in 2022

In the US context: Circa 2020 the minimum reserve balance requirement was removed, so I am not sure why do institutions need to borrow and lend overnight reserves among themselves? As far as I ...
5 votes
2 answers
106 views

Given a large increase in the price of an essential good, can suitable monetary policy keep average inflation very low?

Suppose there is a very large increase in the world price of an important good which is essential for many people, such as the increase in price of natural gas over the last year or so. Considering ...
  • 7,694
1 vote
1 answer
49 views

Is it correct to distinguish between "monetary" and "price" inflation?

As the questions says. Should we distinguish between both. Or are they the same thing?
1 vote
1 answer
44 views

Who benefits/is worse off from "death of forward guidance"?

A few months prior, I asked: What is the worst potential outcome if the Fed "loses credibility?" where a great answer pointed out that forward guidance allows a central bank to achieve ...
0 votes
1 answer
98 views

What is meant by "expansionary fiscal policy" and "tight monetary policy" in G. Soros' statement in his book The Alchemy of Finance?

I came across the following idea from George Soros' book The Alchemy of Finance which is also discussed in the book The New Market Wizards (by Jack D. Schwager) during the latter's interview of S. ...
  • 1
1 vote
0 answers
34 views

Eurozone crisis between 1990s-2010(?)

Earlier when the Eurozone is established, the countries have a problem of competitiveness: the growth of wages is much faster than the growth of productivity. This high salary results in high prices ...
1 vote
0 answers
19 views

Is it accurate to say reverse repo is 'conflicting' with monetary policy?

As seen in the chart, historically, reverse repo levels have been fairly small or at most, a few hundred billion dollars: Now into the USD trillion handle, it's a more prominent fixture of the money ...
0 votes
0 answers
9 views

When interest rates are historically and exceptionally low why are businesses still acting negatively to their increase?

Usually when interest rates rise businesses cannot borrow so the amount of capital they have available goes down which then means they hire fewer people and wages go down so inflation goes down. This ...
0 votes
0 answers
133 views

Can a recession caused by drastic increases in the official interest rates be good for the economy in the long run?

Most of you are probably aware that a lot of the countries are increasing their official interest rates in order to fight inflation. Interest is an expense for the companies and individuals, thus an ...
  • 307
1 vote
1 answer
43 views

Japan: Will the quantity of money per unit of output and the consumer price index show a huge divergence in the decades after 1980?

Milton Friedman, in one of his talks in 1980, showed a series of examples to illustrate his statement that inflation was a monetary phenomenon. One of the examples he used was Japan. The following ...
0 votes
1 answer
33 views

What constraint is there on velocity of money?

MV = PY I am trying to develop an intuitive understanding of it. M = Money Supply, V = Number of Transactions, P = Average Prices, Y = Output/Income. The equation seems to suggest that if money supply ...
  • 101
0 votes
0 answers
15 views

Which empirical correlations are known between the velocity of money circulation and economic factors?

Usually the velocity of money is calculated as a ratio of GDP (or similiar) over a monetary aggregate (typically M2). But, it is debatable whether that simple ratio is really measuring the rate at ...
  • 288
2 votes
1 answer
43 views

In what ways will taxing corporations reduce inflation?

President Biden Tweeted to the effect that taxing corporations will reduce inflation. When I look at what goods are experiencing the most inflation it seems to be things like groceries and rent. What ...
1 vote
1 answer
32 views

Why do reserves increase when the Fed buys bonds? (Introduction to Macroeconomics)

A question asks, "If the federal funds rate were above the rate the Fed had targeted, the fed could move the rate back towards its target by _" and then the options are buying/selling bonds, ...
  • 13
1 vote
1 answer
95 views

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 ...
  • 355
0 votes
0 answers
34 views

How much of Australian inflation is demand driven or supply driven?

For the Aussies who have been keeping track with the current inflation rate at 5.1% we have seen the policy response by the RBA increasing the cash rate by 25 basis points so its now at 0.35%. This is ...
2 votes
1 answer
70 views

Why does Putin want to be paid in rubles?

Putin demands other countries to pay Russia for its gas in rubles. He does this supposedly to strengthen the ruble. I don't fully understand why this is important for Russia. Imagine they pay him in ...
  • 123
0 votes
0 answers
14 views

Why does a balance of payment deficit lead to an outflow of gold under a pre-WW1 gold standard?

I am trying to understand how gold flows "out" of the country during a BOP deficit and why this results in a contraction of the domestic money supply. I am not sure if the following ...
  • 41
1 vote
1 answer
40 views

Real effect of monetary policy

In the article The State of New Keynesian Economics: A Partial Assessment, Gali says the following about the monetary policy in DSGE models: "Exogenous changes in monetary policy have nontrivial ...
  • 437
1 vote
3 answers
103 views

Did Russia peg Rubles to a Gold Standard?

Did Russia peg the Rubles to gold? I keep reading articles on that. Are there any catches or circumstantial facts, that Russia is not on a gold based standard? Trying to verify these articles. ...
3 votes
1 answer
34 views

Does low nominal interest rate encourage lending?

In expansionary monetary policy, it's written: The Fed purchases more government bonds to drive down interest rates and increase the money supply. Now, low interest rate can infer two things: ...
0 votes
0 answers
21 views

Does the money from Fed buying bonds go to Excess Reserves?

Suppose the Fed decides to buy $\\\$x$ of a bank's bonds. In the bank balance sheet, does the entirety of the money get added up in the bank's excess reserves (which the bank can loan out)? Thanks
1 vote
0 answers
88 views

Impact of contractionary monetary policy and IS-LM curve shifts

Using the IS-LM diagram, show the impact of a contractionary monetary policy for a country when: (a) it does not affect expectations about future interest rates and output (b) it affects expectations ...
  • 173
1 vote
1 answer
77 views

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 ...
  • 355
1 vote
1 answer
72 views

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 ...
  • 123
0 votes
0 answers
23 views

Meaning of “accumulation through mar­ket exchanges”?

I'm unsure as to whether this question belongs on the History or Economics stack exchange, but while reading a book on Soviet Union policies after WW1 I came across the term “accumulation through mar­...
  • 109

1
2 3 4 5
9