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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.

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Linearisation of the IS curve?

How to the IS curve linearised around the structural equilibrium?, what is the math behind it?
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Quantitative easing

Quantitative easing is an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the ...
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Can central bank interest rate hikes lead to a price gain in equities?

I ran an empirical analysis on recent interest rate changes of European central banks on Swiss equity prices and found statistically significant results. A 1 percentage point increase in interest ...
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Central bank loss function

$$ L_t = \gamma(\pi_t - \pi_t^\otimes)^2 + \hat{Y}_t^2 $$ Central banks loss function is given by the equation above. This loss is increasing and convex in the distance from the inflation target, i.e....
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Why is the measured year 2018 inflation rate low despite rounds of quantitative easing?

Is it correct to state year 2018 inflation rate of 2.2% is very low? Is it correct to state that even though the commodity prices have not increased, the increased money supply coming from the ...
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A question about a derivation in Gali's Monetary Policy book [closed]

In Chapter 3 of Gali's famous Monetary Policy book, he measures the effects of a monetary policy shock. The interest rate rule is: Then a shock $v_t > 0$ occurs. He proceeds to measure how this ...
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Why does a reduction in money demand lead to a rightward shift in the LM curve?

In my textbook, it says Y must rise to restore money market equilibrium as the justification.
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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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Main assumptions when discussiong what effect that a Turkish recession will have on EU GDP

Assuming that the Turkish economy will hit recession level numbers next year, what underlying assumptions can economist use to explain the likely effect on European GDP on a 5 year horizon. So, ...
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Central Bank Balance Sheets and foreign bonds

I have a question relating to central bank's balance sheets, taken from Krugman and Obstfelds' "International Macroeconomics" textbook. They mention that when the central bank purchases foreign ...
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Question on Open Market Operations

I have a very basic question on the somewhat cryptic Open Market Operations. So, from what I understand, say the Fed wants to reduce interest rates (increase monetary base). It will firs buy a bond by ...
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Tax system is progressive or regressive

Let´s discuss a little! When the direct effect of a tax or transfer policy (compared to what would happen in the absence of the policy) is a reduction in inequality, it is called progressive policy. ...
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How does the money supply grow in the long term?

For inflation to happen at roughly 2%/yr and for people to trade the same (or higher) volumes of goods, people must be trading more money. For such a trend to exist in the long term, there must be ...
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How would a “one-way” fixed exchange rate backed by destroying foreign currency work?

Note: This question may seem really pointless, but it's actually in the context of a cryptocurrency idea I am developing, but I posed it this way as the question is not really about cryptocurrencies ...
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Why would a rise in the discount rate stop foreign gold drain and make banks fail?

I am reading "Capitalism and Freedom" by Milton Friedman. In Chapter 3, "The control of Money", Dr. Friedman explains how the Fed exacerbated the Great Depression of the 1930s. In particular: In ...
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What is the point of a constant (thus known) inflation rate?

I have read somewhere (attributed to Milton Friedman) that a good practice of monetary policy is to maintain a constant inflation rate (of 3% per annum, say). What is the point of that? If everyone ...
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Cons of printing more money but not injecting in the system directly

So I don't know if this might be the right place, if it isn't I'd appreciate if anyone can link me to the right place. Anyways here is the question. I've read up on what are the cons of printing more ...
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Why do many economists believe that money is neutral in the long run?

If a central bank carried out monetary policy that consisted of multiplying each person's wealth by a common factor, I would find it plausible that all prices would get multiplied by the same factor ...
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Welfare analysis

Why people use second order approximation when they wanna do welfare analysis. If a simulate a model which is log-linearized and then plug the values (applying exp() ) in the utility function I am ...
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What would be the effect on the economy if the United States legalized counterfeiting?

If today the United States legalized counterfeiting, what would be the effect on the economy? The counterfeit must look authentic to be legal, thus requiring some skill.
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Elasticity of demand for loanable funds

If there is low confidence in the economy will this reduce the elasticity of demand for loanable funds because for a given decrease in the rate of interest, demand for loanable funds would be less ...
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Roosevelt’s Price Fixing in The Great Depression

Why didn’t Roosevelt’s method of fixing prices on labour and produce help the depression? If everyone was receiving a wage that allowed them to afford produce, wouldn’t that create a new equilibrium ...
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I Want to Build a Game Based on a Full Reserve Banking System

I want to build a game based on full reserve banking monetary system. I recently discovered this document https://www.scribd.com/document/154150356/1939-A-Program-for-Monetary-Reform describing how ...
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Policy rate and the mean of the stochastic discount factor: what is exogenous?

Let us fix the length of one period to be the tenor of the risk-free rate targeted by the central bank, e.g. 1 day. There exists a stochastic discount factor (SDF, a.k.a. pricing kernel). I am ...
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Expectation augmented Phillips Curve

Currently studying Intro to Macroeconomics, and faced Expectations augmented PC. In my textbook it is not clear how expected inflation affects unemployment. My view so far, is that expected inflation ...
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Market clearing condition with Walras law

I have a diamond overlapping model The question is as follows Let us consider an infinitely lived production economy populated at time t by $N_t$ identical and perfectly competitive adult ...
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Do changes in fixed taxes have a bigger effect on real GDP compared with government spending because they affect consumption

True or False: Changes in fixed taxes have a bigger effect on real GDP compared with government spending because they affect consumption
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Required bank reserves in Brazil

Currently studying about the tools of monetary policy and one of them is changing the required reserves ratio of banks in order to reduce loanable funds or increase them. Although the reserve ratios ...
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Hyman Minsky's view on Bank Examination

In Stabilizing an Unstable Economy (1986), Hyman Minsky argues that "bank examination is largely perfunctory... rather than an inquiry into the economic viability and the exposures to risk of banking ...
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Friedman rule vs Friedman's k-percent rule

Friedman has stated in his "k-precent rule" that the money supply should increase by a fixed percentage each year. On the other hand, the "Friedman rule" states that the nominal interest rate should ...
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What is the effect of expansionary fiscal policy in case liquidity trap situation?

I've read that liquidity trap means interest rate is at its minimum and increase in real money stock will not lead to fall in interest rate because people will be demanding whatever the amount is ...
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Why is the rising price of a commodity inflationary, while the rising price of money is disinflationary?

Everybody buys oil and everybody borrows money. If the price of oil goes up, we call that inflation and the central bank uses monetary policy (rising interest rates) to reduce inflation. Why is the ...
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Why does changing the value a currency help/hurt exports if sellers can just inflate/deflate prices to match the change?

1) I make widgets and sell them for $10. 2) The government reduces the value of my currency by 10%. 3) The market value of my widgets is the same as before, so I raise my prices to $11 and I can ...
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59 views

How is it economically responsible to destroy proprty which has value? [closed]

precursor: bitcoin.stackexchange.com/q/1851 How can it be economically responsible to destroy property which has value? If a property is destroyed (which is the right of the property holder in most ...
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Multiple regression as econometric model for researching an impact of monetary policy on GDP and inflation?

I'm student and I need to analyse an impact of monetary policy on GDP and Inflation during financial crisis and after for two countries and I need to compare this impact. I will build 2 models for 2 ...
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What is Warren Brookes' “strong dollar policy”?

In John Tamny's review of "The New Geography of Jobs" by Enrico Moretti, he claims the solution to current economic strife is a "strong dollar": Despite my frustration with many of Moretti’s ...
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Which economist suggested solely printing money to borrow and not have bonds?

I remember reading this really interesting idea by some economist that a government need not issue fixed-term debt such as bonds, notes or bills. Instead all it could do is print money and use it to ...
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Confusion about the effect of an increased expected inflation on the price level

In Mankiw's Macroeconomics 7th edition, on page 99, there is the following equation, which states that "the price level depends not only on today’s money supply but also on the money supply expected ...
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Are there any examples of tariffs working?

Nations have imposed tariffs on goods for many reasons throughout the ages. Are there any examples of a tariff actually succeeding at its intended goals? When I research tariffs, I find countless ...
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Printing money to redistribute wealth

A fictional country has 100 people. The total printed money is $2000. Ten rich people own half of it ($100 each), the remaining ...
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Can the function of the Central bank become automated?

How plausible is the idea of the central banks function becoming automated. Central Banks seem to function as a feedback depending on the flow of money, inflation and fractional reserve. If the ...
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Financial markets, money demands [closed]

How can an increase in the interest rate make bonds more attractive and reduce their price?
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Considering how USD enters the market, is the USD actually unbacked? Could the USD represent a unit of a “fund” of securities held by the Fed?

From my understanding, all new money enters the market either 1) by the Fed lending it to banks, so the Fed essentially owns bonds in the exchange, or, 2) The Fed purchasing other financial assets. So ...
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Ben Bernanke Portfolio Balance Effect

I have a question based on reading some speeches and research papers, mainly by Ben Bernanke, on the portfolio balance effect. Here is Bernanke in a recent paper he authored where he describes the ...
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Does Not Having a Fractional Reserve System Cause More Inflation?

It is my understanding that countries without fractional reserve requirements still have capital requirements, but what I do not understand is how equity can be used to satisfy these requirements ...
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Questions about Paul Krugman's 1998 Japan Analysis

I'm reading some of Paul Krugman's writing on Japan and the liquidity trap; specifically this article: Japan's Trap. However, I'm not an economist (just an enthusiast) so I have some basic questions. ...
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Why can't countries print another country's currency?

Counterfeiting money is clearly a difficult thing for individuals, but surely a country should have no problems counterfeiting another country's currency. Why don't countries do it? For example, for ...
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In a closed system, what is the relationship, if any, between currency supply and market capitalization?

Assuming: A world in which the market value of publicly traded companies is known Any transaction to buy or sell stock of said companies can only be consummated with a new currency X, which is freely ...
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Why doesn't the government create money, spend it for free without interest, and recollect it with taxes?

I was thinking of a better monetary system, and here is what I came up with it. I'd like to know if this would work, as I see if offers many advantages over our debt-based monetary system today. A ...
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Reading list on monetary policy

Disclaimer: I am not an economist. I am just an engineer interested in understanding monetary policy. What are the must read books on monetary policy? If someone has a reading list on monetary policy,...