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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21 views

Why isn't the Federal Reserve interest rate set by a published algorithm?

The Federal Reserve sets the interest rate, presumably based on a number characteristics and trends in the economy: inflation, GDP growth, population growth, unemployment, housing prices, etc. However,...
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Optimal monetary model

An economy is populated by identical, infinitely-lived agents (there is no population growth) that maximize the present discounted value of lifetime utility given by $$U=\sum\beta^t(ln\ c_t+Al_t)$$ ...
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Estimate a Monetary Policy Reaction Function with Generalized Method of Moments

I want to estimate a Monetaryu Policy Reaction function with GMM. I have well understood how to estimate a distribution (e.g. the normal distribution, the log-normal distribution, and so on) with GMM. ...
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Capital goods prices: data for Euro-area countries

For my bachelor's degree work I'm trying to estimate the natural rate of interest for euro area and I'm doing this following three main approaches: the first one is the one that defines the natural ...
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Would printing money be necessary for remedying macroeconomic problems such as underemployment and overindebtedness if trade was balanced?

Printing money is often touted as the solution to the macroeconomic problems faced by developed economies today, namely lacklustre GDP growth, public and private overindebtedness and underemployment. ...
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Why West Virginia is one of the least-vaccinated states in the country due to cash giveaway announcement?

In a newspaper, I saw the paragraph In some U.S. states that held lotteries for vaccine recipients, with some prizes reaching the million-dollar mark, leaders reported upticks in interest, but it’s ...
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143 views

Why was Friedman so wrong about inflation?

In a famous 1977 lecture, Milton Friedman claims that inflation depends purely on the monetary policy and he proves it with a convincing chart (youtube video here) I have reproduced his chart using ...
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62 views

Why are so many economists critical of central banks manipulating markets and creating artificial demand?

When demand for liquidity outstrips supply (rate increase in a credit crunch) then the law of supply states that quantity supplied also increases with price (rate decrease provided demand stays ...
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IS-LM : monetary policy in SOE that exports inferior goods

If I follow the IS-LM model (or some derivative of it), a small open economy can really only use monetary policy to change GDP in the short term. According to the model (or one of its spin-offs), if ...
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Why is IOER so much higher than short term Treasury yields?

Interest on excess reserves is currently at 0.15%, but the yield on 1, 2, 3, and 6 month Treasury bonds are all only 0.05%. Why is this the case? Shouldn't IOER be about the same if not lower than the ...
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When interest rates are high, where does the money that banks pay to depositors come from?

I know that banks primarily make money from the 'spread', that is, people deposit their money in the bank and the bank pays them back with interest, and the bank lends that money to other people and ...
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detailed account of government borrowing and fed open market operations

I would like to read an extremely detailed (yet, if possible, accessible) account of exactly what happens when the US government borrows money -- how rates are negotiated, who exactly the ...
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Data access: reverse repo rate vs 3-6 month treasuries

I was browsing through the St. Louis Fed's website to look for time series data on rates for short term cash / sovereign notes. The goal is to basically scrape what data I can find and plot the two ...
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Time series for contrasting empirically money demand and Taylor rules series

Non-cashless New-keynesian models often include discretionary monetary policy expressed as a Taylor rule: $1+i_t = (1+i)\left(\frac{1+\pi_t}{1+\pi}\right)^{\phi_\pi}\left(\frac{y_t}{y_t^n}\right)^{\...
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How was sulphuric acid used to back money?

I remember reading in a economics and history book that sulphuric acid production was used as an alternative to gold standard as the basis of the value of currency due to it’s importance in making ...
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Is modern monetary theory sustainable?

I am looking around at a lot of the central banks around the world (primarily ECB, Fed, and BOJ) and they all seem to be simply printing their way out of any issues with their economies. As far as I ...
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What was the US monetary policy like in the 70s?

Today the US inflation target is roughly 2%. However in 1974 the inflation rate was 11% and in 1980 it was 13.5%. What monetary policy did they follow at that time that allowed the inflation to rise ...
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Are return on investments "sticky"?

From what I understand in an economic downturn the wages are "sticky". This results in increased unemployment. To combat this the central bank according to monetarism lowers the interest ...
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To what extent can cryptocurrencies be influenced by monetary policy?

Background In modern economies, at least up until ~10 years ago, it was assumed that a currency would be technically able to be subjected to monetary policy, that is, where more money is created or ...
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Can the monetary policy affect wealth inequality? [duplicate]

I think that it is often assumed that monetary policies have little or no impact on inequality. At least in the public the monetary policy is not seen as a political question the same way that fiscal ...
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During QE what prevents the banks from selling government debt to invest in the stock market instead of lending out the money?

This is how QE is supposed to work: The fed buys government debt from banks. This lowers the long term interest rates and businesses and consumers borrow more, which is good for the economy. But what ...
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62 views

Could the Feds objectives be adjusted to decrease or at least not increase wealth inequality?

The US congress "has assigned the Fed to conduct the nation’s monetary policy to support the goals of maximum employment, stable prices, and moderate long-term interest rates."(1) It seems ...
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Interpretation of sub-unity money velocity

I've read through questions like: Implications of declining money velocity and noticed this trend has intensified since, with velocity printing the lowest readings in history in the past few months. ...
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The impact of a devaluation of the national currency under a fixed exchange rate system

I would really be thankful if any of you could check my answer to the following question. Question: Describe, using the IS-LM-BP model, the impact of a devaluation of the national currency under a ...
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How to understand: interest income is a moving average of past interest rates

I encounter this question in the paper by DRECHSLER et al. (2021) (Banking on deposit). How to understand that "interest income is close to a moving average of past interest rates, consistent ...
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Solving complex RBC/DSGE models

Why is it important for policymakers (central bankers, the treasury department, the finance ministry etc.) to be able to solve complex dsge/rbc models as quickly and as efficiently as possible? I am a ...
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How can the Fed enforce exit criteria if they begin yield curve control?

Over the past year, the notion yield curve control has resurfaced and appeared on FOMC minutes, decades after its last implementation. According to the Fed's introduction page: As the U.S. continued ...
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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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561 views

Does Modern Monetary Theory (MMT) provide a useful insight into how to manage the economy?

According to advocates of [Modern Monetary Theory][MMT] (MMT), the primary risk once the economy reaches full employment is inflation, which can be addressed by gathering taxes to reduce the spending ...
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3answers
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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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Sidrauski Monetary Model and Neutrality

In the Sidrausk model, money is in the long run super neutral. Does this result only apply to the case where money and consumption are separable in the utility function, or also to the case where they ...
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53 views

Help with AP Macroeconomics FRQ [closed]

I am a senior in High school and am taking an AP Macroeconomics course. I just took an FRQ and received an F on it. I asked my teacher multiple times to explain why my answers were wrong, but to no ...
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I there an established correlation between Federal Reserve balance sheet and MB( monetary base)?

More precisely: Are there any implied bounds for the ratio M0/FRBS with MB= the monetary base and FRBS=Federal Reserve Balance Sheet? https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm ...
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133 views

What are the advantages of using euro for Greece?

Theoretical benefits of using unified currency are well known and described in many places like https://www.economicshelp.org/europe/benefits-euro/ However, reality (or more comprehensive analysis) ...
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How did investment go from exogenous to endogenous in the IS/LM model?

Context: I am currently taking an introductory course to macroeconomics and we are on the topic of Keynesian Economic and the IS/LM model. Initially we saw that the investment (I) component of ...
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Is It Possible for a Country to have a Gold Standard without a Fixed Price of Gold?

It is my understanding that at the beginning of the 20th century, many, if not most, countries had a monetary system that was based on a gold standard. However, by the end of the 20th century, most ...
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Does the Fed/SEC have tools to address shock-propagation from correlation of fund flows?

Premise In 2017, passively invested assets totaled 37% of mutual funds and ETFs; by 2021 this number is closer to 50% if not more. After the market downturn in (March) 2020, the Fed updated their ...
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Bank Charter Act of 1844 vs banking landscape 2021 - regulatory capture or policy obsolescence?

A driving motivation for the Bank Charter Act of 1844 was to institutionalize/centralize seignorage and impose limits on how much influence commercial banks have in terms of money creation (along m4 ...
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Derivation question: Gali (2015), chapter 5, equation 25

I am wondering how Gali derived equation (25) in chapter 5 of his book Monetary Policy, Inflation, and the Business Cycle (2015). We have equation (21): $$ \vartheta \hat{x}_{t} = -\kappa \hat{p}_{t} +...
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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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Please help solve a bank's maximization problem

I want to solve following maximization problem: $\underset{\{i_{t}^{l}(i),i_{t}^{d}(i),B_{t}^{l}(i),B_{t}^{d}(i),R_{t}(i)\}}{\max } i_{t}^{r}R_{t}(i)+(i_{t}^{l}(i)-\mu ^{l}) B_{t}^{l}(i)-(i_{t}^{d}(i) ...
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Is a binding ZLB a binding constraint?

Usually, in an optimisation problem, a binding constraint is one at which the optimal solution holds at the constraint with equality, i.e. it's a boundary solution. However, in many articles, for ...
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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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What happens when government bonds purchased as part of central bank quantitative easing (QE) reach maturity?

Does the central bank ask the government to pay or are they rolled over?
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Asset bubbles and empirical findings for monetary stimulus' effect on productivity

It may be fairly empirical that leveraged investments can cause "asset bubbles" that often result in really highly priced assets (which I'll refer to as the ("leverage argument") --...
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56 views

How low can interest rates go? How deeply negative?

Ten years ago, negative interest rates were an impossibility, an intellectual curiosity. Now it's a common policy. Just read a claim that there is still an absolute lower bound, even if it happens to ...
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What would monetarists do when interest rates approach zero and become ineffective?

So monetarist economists such as Milton Friedman focus on managing the money supply and lower interest rates as a solution to economic downturn. But what would they do in a recession as the interest ...
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How did the silver standard "insulate" China from the beginning of the Great Depression (1929-1931)

There is a segment from this article that I want to unpack: The Great Depression was a global crisis—almost. Every significant economy was devastated, with one notable exception: China. The reason ...
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What are some of the good textbooks on Modern Monetary Theory and the Development of Monetary Theory?

I am trying to study modern monetary theory for my research. Recommendations, please? Thank you!
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Where to find information to establish causation between economic policies and economic data?

I've merely taken a few economic courses in college -not an economics major-, so my knowledge regarding the field is limited. Lately I've been interested in learning about the economic impact of ...

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