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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Is zero inflation desirable?

Is zero inflation really desirable? To be more precise: Does inflation in real life have benefits that in some situations outweigh its social cost? E.g.: it works as a disincentive against holding ...
Giskard's user avatar
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17 votes
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Implications of abolishing Fractional Reserve Banking on mortgages and interest rates

Suppose for a moment that someone with legislative power decides to abolish Fractional Reserve Banking and passes a law that forces banks to only lend the money they own, that is M0. What would be the ...
matcheek's user avatar
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8 votes
2 answers
465 views

The Printing of Money for Paying Debt

I know that printing money causes inflation, but what if we print it to pay back our debts? For example, we have N dollars of debt to China. We can just print the N dollars and give it to China. ...
MehranJ's user avatar
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31 votes
4 answers
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From an economics perspective, what are the ramifications of a currency with fixed money supply?

I'm thinking specifically of bitcoins. What are the pros and cons of having a fixed number of coins, as opposed to more "normal" currencies? Would the currency have no inflation?
Jason Nichols's user avatar
5 votes
3 answers
933 views

Is money mostly created (out of nothing) by banks making loans?

In the Bank of England's Quarterly Bulletin, 2014 Q1, McLeay, Radia, & Thomas write a pair of articles titled: "Money in the modern economy: an introduction" and "Money creation in ...
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-1 votes
2 answers
327 views

What amount of Quantitative Easing will cause hyperinflation?

You all know that Quantitative Easing shifts the LM and AD curves right, so I haven't taken the time to redraw this picture. What's the maximum amount of Quantitative Easing that the Federal Reserve ...
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8 votes
3 answers
296 views

Why should I get a bond with negative interest instead of having a bank deposit account either zero interest or positive interest

I don't get why central banks apply negative interest rates. They say that buy our bond and at the maturity, it will worth less than today. What is the policy outcome of such decision? Why an investor ...
user9386's user avatar
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3 answers
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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 ...
Allure's user avatar
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Consequences to lending and value of national currency from a negative interest rate and 140-year mortgages in Sweden

According to an article at Yahoo Finance, the Swedish central bank dropped its zero interest rate to -0.1 percent a couple of days ago (the article is dated to Thursday, February 12th, 2015). Now, ...
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8 votes
3 answers
2k views

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 ...
Cort Ammon's user avatar
4 votes
1 answer
116 views

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 ...
KarmaPeasant's user avatar
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4 votes
1 answer
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Currency substitution after withdrawal from a currency union?

Currency substitution is the situation where a country uses a foreign currency. For example, Montenegro and Kosovo unilaterally use the euro, El Salvador and Panama unilaterally use the dollar. In ...
gerrit's user avatar
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3 votes
4 answers
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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?
sba222's user avatar
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2 votes
1 answer
389 views

How is monetary policy fair in the current economy? [closed]

I've just read Money Creation in the Modern Economy, an article published by the Bank of England. This article brings about a lot of questions in my mind. This article talks about money being created ...
Alexandru's user avatar
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1 vote
1 answer
79 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 ...
Andy's user avatar
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0 votes
1 answer
87 views

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 ...
user10136297's user avatar
12 votes
4 answers
6k views

How does a national budget differ from a household budget?

We are often told by pundits that "Country X cannot spend more than they take in in revenue, because a house that makes A and spends B will always collapse if B>A". Essentially the siren calls of a ...
Jason Nichols's user avatar
11 votes
1 answer
1k views

Wouldn't abolition of cash give rise to a substitute currency?

Some countries (e.g. Sweden and Denmark) plan to abolish physical cash in the future and restrict the use of cash to electronical deposits. One of the reasons for this is to prevent hoarding / boost ...
proskor's user avatar
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10 votes
2 answers
572 views

What's quantitative easing?

From what I understand after reading mainstream media, quantitative easing increases the supply of money in the economy without direct government spending (fiscal policy). It seems to have all the ...
Huey's user avatar
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7 votes
2 answers
396 views

Why lower the deposit rate if it is already negative?

The European Central Bank (ECB) has been lowering the interest rate on its deposit facility, first to -0.1% in June 2014, then to -0.2% in September and eventually to -0.3% in December 2015. But what ...
proskor's user avatar
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6 votes
1 answer
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What major monetary policy actions were taken during the Great Recession (2007-2009)?

What major monetary policy actions were taken during the Great Recession (2007-2009)? Quantitative easing and unconventional policy actions such as asset purchases and "forward guidance". I think I'm ...
Amy's user avatar
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6 votes
3 answers
203 views

Who regulates the balancing of the books for commercial banks? How? Is it public information?

I've just read Money Creation in the Modern Economy, an article published by the Bank of England. This article brings about a lot of questions in my mind. This article talks about money being created ...
Alexandru's user avatar
  • 273
5 votes
1 answer
288 views

Is QE the equivalent of printing money?

I heard somewhere that QE is not the same as printing money -- in fact as I know it, QE is the purchase of assets in exchange for more liquid and high-quality, better collaborated debt. In other words,...
economics's user avatar
5 votes
1 answer
967 views

Cash and negative interest rates

Recently, I read an IMF blog on how the negative interest rate policy can be implemented feasibly here. I don't really understand what they are saying in this paragraph: When cash is available, ...
Tan Yong Boon's user avatar
5 votes
2 answers
627 views

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-...
Trajan's user avatar
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5 votes
5 answers
453 views

Why should Greece destroy their cash euros?

Leading economists in my country (Sweden) recommend and predict that (in the case of default) the Greek government will destroy all the euro bills in the country. Making holes in them and stamp them ...
LocalFluff's user avatar
4 votes
1 answer
310 views

What if only the government could create money? [duplicate]

If I understand correctly, under the dominant system of fractional reserve banking, many (all?) private banks can create money by lending. See, for example, Implications of abolishing Fractional ...
gerrit's user avatar
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4 votes
1 answer
98 views

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 ...
SalahTheGoat's user avatar
3 votes
1 answer
193 views

Abenomics and the Japanese VAT tax hike

Abenomics seems to me like a straightforward and modern plan of economic reflation through monetary easing and some attempt at structural reform. While it's still early, it looks like many of the ...
tohster's user avatar
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3 votes
3 answers
124 views

Creation of Money - Hypothetical Situation

Imagine you sell me some consulting services. I don't have any cash, so I give you a $100 IOU instead. You now have a $100 Note Receivable on your Balance Sheet. ...
David's user avatar
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3 votes
0 answers
740 views

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 ...
b11bb's user avatar
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2 votes
1 answer
455 views

Is there any scientific proof that 2%-3% target inflation rate is ideal?

There are a couple of central banks (RBA, Federal reserve for example) that use inflation rate as a key indicator to regulate their official cash rates. Those target inflation rates usually range ...
TelKitty's user avatar
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2 votes
1 answer
46 views

How could monetary policy be affected if cash "gifts" to consumers were more frequently used?

A few years ago in the US, everyone who filed taxes received a check for $1000. If this method of inflation was logistically more feasible, how could this be used in monetary policy, and what ...
makerofthings7's user avatar
2 votes
1 answer
67 views

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 ...
icecream_hobbit's user avatar
1 vote
2 answers
796 views

How do central banks regulate the money supply to avoid inflation?

It is a tricky problem. Historically, poor control money supply led to inflation. Out of control money supply led to hyperinflation. Central banks seem to do a wonderful job in recent years with ...
curious's user avatar
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1 vote
2 answers
218 views

Does inflation equal change in M1 or M2?

According to monetarism, inflation can be predicted precisely by the change in money supply and GDP growth. Does "money supply" here refer to M1 or M2, i.e. does it include debts created by ...
Karthik's user avatar
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1 vote
2 answers
104 views

Can banks maintain Euro accounts if the country they're in leaves the eurozone?

If a country forcibly leaves the Eurozone, is it possible for banks within this country to maintain existing euro deposits? Or does leaving the eurozone mean those deposits are automatically ...
gerrit's user avatar
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1 vote
1 answer
85 views

Why did the rate of money supply growth accelerate from 1993-96 in the United States?

Even though the rate of growth in the monetary base decelerated — and the money multiplier decreased for the most part — from 1993-96 in the United States, the growth rate of the M2 money stock still ...
user14013's user avatar
0 votes
1 answer
461 views

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 ...
ahorn's user avatar
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-1 votes
3 answers
100 views

Does Shadow Banking (i.e. non-Commercial Banking) produce transaction-useful money?

In shadow banking amongst primary dealers & large institutions...I understand repurchase agreements function similar to deposit accounts (Gorton, et al). Additionally, I understand how traditional ...
David's user avatar
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