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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Can you change monthly monetary shocks into quarterly ones?

There are now many series deriving monetary shocks at high frequency, e.g., Jarocinski-Karadi (AEJ:M, 2020), Bauer-Swanson (NBER MA, 2023). These typically come at a monthly frequency. However my ...
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Why did Newton choose to devalue silve with respect to gold and (effectively) create the gold standard?

This is a question of economic history, specifically about one specific event that caused the British to adopt the gold standard. Reading about the gold standard one often encounters statements like ...
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Why does price stickiness induce non-determinate interest rates in the NK model?

I am hoping for a simple intuition for why price stickiness induces indeterminacy of the interest rate, $i_t$, in the benchmark New Keynesian model. When prices are flexible, the natural rate is ...
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Why raise UK interest rates to control inflation Now - May 2023?

The usual reason given for raising rates to control inflation is that it reduces consumer spending, increases borrowing costs and slows the economy. However, in an environment where the inflation has ...
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What were the biggest events in terms of Monetary Policy in May 1975?

Take a look at this plot, which is the daily American zero-coupon yield curve from 1975, as reconstructed by Liu and Wu (JFE, 2021): One can see a major change of shape in May, 1975. It seems that ...
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How can good outcomes, and not just trade-offs, be achieved through economic policy?

I realise this is a very broad question, and my economic knowledge amounts to 1 year of high school, but it seems as though every economic policy causes trade-offs, and none actually solve issues. As ...
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Real Income and a Fixed Money Supply

What would happen to nominal income and wages if the money supply were fixed (100% reserve banking). Would real wages increase, even though nominal wages would stay the same or even decrease?
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movements along and shifts of the AD curve

i dont understand how the reason that i've stated below causes a shift of the AD curve while the other causes a movement along when they're almost the same thing. how does contractionary monetary ...
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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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Why limit the maximum size of deposit-CBDC transfers?

From page 33 of Dirk Niepelt's Money and Banking with Reserves and CBDC (October 2022): Some central banks consider caps on CBDC balances to limit the maximum size of deposit-CBDC transfers ("...
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A Classical Monetary Model (Gali)

In the classical monetary model described by Gali (2008), in chapter 1, on page 28 it is written that: $$ \pi_t=-\frac{\sigma \psi_{y a}\left(1-\rho_a\right)}{\phi_\pi-\rho_a} a_t $$ The author states ...
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A question about Ihrig et al. (2015) and the Fed's policy implementation prior to 2008

Ihrig et al. (2015) review the implementation of monetary policy in the US prior to and after the Financial Crisis of 2008-2009. In describing the Fed's approach prior to the crisis, based on open ...
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Why do sticky prices make output partly determined by demand?

First time going through the basic new-keynesian model and i understand the math behind it okay. I also get that output being partly demand determined is the transmission mechanism for monetary policy ...
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What is the difference between "The effects of Monetary Policy" and "The effects of Monetary Policy Shock"?

I know this may be a silly question. I always thought these were different but some people in the literature use them interchangeably and I was wondering are they different? If so, how are they ...
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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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Repaying loan principal destroys deposits - but what about making interest payments?

It's pretty well understood (and documented) that when a bank loan principal is repaid, deposits are destroyed. What about the effect of interest payments? Intuitively, I would expect paying ...
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Printing money to put into a Superannuation or UBI fund

It is fiscal policy to keep inflation at between 1-2% (in New Zealand at least) Various tools are used to keep inflation in this range. Let's say the average inflation rate is 1.25% What would ...
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"If the aggregate supply is linear, demand shocks cannot affect average unemployment", what does it mean?

Aggregate Supply: $\pi_t =\pi_{t-1} -\alpha(u_t -\bar{u})+e_t^S$ Welfare: $W_t =-cu_t -f(\pi_t ), c>0, f''(\cdot)>0$ $\bar{u}$: natural unemployment rate $e_t^S$: supply shock In Romer's ...
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Taylor Rule Model Specification: Serial Correlation and Interest Rate Smoothing

I'm reading this paper by Abrams and Iossifov. The paper investigates electoral cycles influence on monetary policy by estimating a Taylor Rule reaction function using OLS. The authors describe the ...
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Monetary policy: could there by alternative outcomes?

Firstly, I understand the standard analysis of how a central bank attempts to modulate credit conditions in the economy (and therefore money supply) to dampen demand to prevent excess price level ...
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Source of Fed Speeches Portal

Does anyone know of a website that contains all the text speeches of all the FOMC members and regional Federal Reserve Bank Presidents going back to a few decades, for example the 1970s.
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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. I'd like to know if this would work, as I see if offers many advantages over our debt-based monetary system today. A new ...
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Is new money created when banks buy Treasury Bonds in primary auction?

From my understanding of the current monetary system when a bank issues a loan it is effectively creating money for the receiver of the loan i.e Mortgage. This increases the M1, M2, M3 numbers of the ...
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Does monetary policy render mathematical models for short-rates nearly useless?

Note: please do note that I am a tech person with no economics background. I've been studying short-rate models so much for interview purposes and finally took a step out of the weeds to think about ...
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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. ...
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Is money we make completely taken away by taxes?

In my opinion, any money we make will be completely taken away by taxes. Here is my logic. When I earn some money (x), I have to give some as tax to the government. ...
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Instead of quantitative easing why wouldn’t Stimulus at Checkout (SAC) work?

Instead of quantitative easing and interest rate reductions why wouldn’t Stimulus at Checkout (SAC) work? What is SAC? When the Fed needs to stimulate the economy, using Point of Sale technology, SAC ...
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Does the ECB issue staff projections for its own interest rates, as the Fed does?

I can see that it has a 'projections' segment here: ECB staff forecast But it seems to take market rates as reference.
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how does Fed's discount rate affect risk-free rate

So the Fed's discount rate is the rate charged on commercial banks for borrowing funds from it. The question is how does the Discount rate affect the overall level of interest rates in the economy ...
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Why was the USD rangebound between 1987 and 1995 from an economic standpoint?

I'm trying to understand what caused this long period of range boundedness for the USD index from 1987-1995 from an economic standpoint. From my understanding. In 1985 the USD had reached it's ...
2 votes
2 answers
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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 ...
6 votes
2 answers
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How can non-US banks issue USD loans?

I understand, commercial banks are entitled by the Central Bank to "create new money" when they issue a loan and correspondingly "destroy the money" when the loan is paid back (...
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Taylor rule and central bank preferences

When the central bank has output stability preferences, it is true that Taylor's rule (TR) is suboptimal compared to optimal monetary policy (MPR) if an inflationary shock occurs. But when the central ...
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What is the difference between monetary policy and monetary policy shock

Sorry for a silly question but I must know the answer to the question. I am asking this because it seems like some people do not differentiate between monetary policy and monetary policy shock. For ...
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If interest rate policy were to disappear tomorrow, how would we/could we manage inflation?

Inflation has obviously become a big issue over the last couple of years again, and I've read people complaining that the inflation comes from increased prices of energy imports, (namely oil and gas), ...
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What's exactly the T/Y value in the Quantity Theory of money simplified equation: MV=PT or MV=PY?

I understood the basic fundamental principle of the theory, that all things being equal, a change in the money supply affects price level. Yet, now I am trying to understand this statement ‘ The QTM ...
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Datasets with high frequency measures of monetary policy shocks for the US

I am looking for sources (datasets) with high frequency measures of monetary policy shocks for the US. For the Euro area I have found this, MPD DATASET. I haven't found anything similar for the US. I ...
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Ricardo Reis and S&D decompositions of inflation

In this presentation at around 21:20, Ricardo Reis discusses a two-sector New Keynesian model to explain that the supply and demand decompositions of inflation by Adam Shapiro as not as informative as ...
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Ex post predictability of "mps" in Bauer, Swanson (2022)

I am reading the paper "A Reassessment of Monetary Policy Surprises and High-Frequency Identification" by Bauer and Swanson (2022). In Section 2, there is a Bayesian updating model that goes ...
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Do borrowing costs go down as a currency depreciates?

I was watching a video (https://youtu.be/2CVOfzuqoY4) and got very confused by the following sentence at 1:18: "Usually when an established currency depreciates in value, borrowing costs in that ...
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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 ...
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What is the difference between systematic and unsystematic monetary policy? [closed]

Explaining in plain english would help me out. Thank you!
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Do IRF of macroeconomic variable to monetary policy shock represent the "true" dynamic effects of monetary policy on the variable?

If the question needs clarification, I will be more than happy to revise. Also, any help would be greatly appreciated.
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What does it mean to identify a monetary policy shock

Any help would be greatly appreciated.
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India and the Impossible Trilemma

This question is in the context of the impossible trilemma. India does not have full capital convertibility on its currency. According to the trilemma, it should be able to have an independent ...
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Federal Funds Rate & Reserves Market Contradiction

Edit: I do understand this isn't how things work anymore, since we are in a "Ample-Reserves Framework" and the quantity of reserves no longer makes a difference that much and it is primarily ...
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What tools the central banks and governments can use to tame profit-led inflation and is the monetary tightening one of such tools?

While the central banks and the governments is not acknowledging it, the private bankers and economists are constantly labeling current inflation trend as the profit led inflation. This morning UBS ...
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Cholesky Ordering in Monetary VAR

In some papers in monetary economics (see below), I've seen used a 4-equation VAR with log industrial production, log consumer price index, the federal funds rate (FFR), and the excess bond premium (...
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How can Real GDP increase while Money Supply remains fixed?

I'm studying the Money Market Graph with it's Money Demand and Money Supply curves. In the classical model they teach the Money Demand curve as sloping down to the right while the Money Supply curve ...
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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 ...

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