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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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?
Setrotoxin11's user avatar
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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 ...
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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. ...
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monetary policy reaction function with gmm: optimal lag for instruments

(edited) I am estimating a Central Bank reaction function using GMM using monthly data. Following the literature, I used lagged values of each variable as instruments (are there other feasible options?...
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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 ...
Arash Howaida's user avatar
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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 ...
Igor Pozdeev's user avatar
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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 ...
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Why is money super neutral in Brunnermeier and Sannikov's I theory of money?

I'm wondering why money is super neutral in Brunnermeier and Sannikov's "I-theory of money", but is not super neutral in their 2016 AER paper "On the optimal inflation rate". In the I-theory of money,...
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Recursive assumption - Identifying exogenous monetary policy shocks

I am reading through "Monetary Policy Shocks: What Have we Learned and to What End?" and am hoping someone here can offer a bit of clarity about a claim made within about how measurement error in data ...
123's user avatar
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Optimal monetary policy under commitment & FOCs

Clarida, Gali, Gertler(1999) show the optimal monetary policy problem of central bank for minimizing loss function under "Commitment" is a output gap, is a inflation rate, ~AR(1) is a supply shock. ...
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Using US foreign tax policy to offset a raise in interest rates

I am an amateur economist at best, more a person with an economic BS looking to explore data science (I will be using python). I have a theory that I want opinion on that will allow the Fed to raise ...
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Currency Peg or Currency Substitution/Dollarize?

Why would a sovereign state choose an exchange rate peg over the demonetization of the local currency, replaced by hard currency? In the case of the West and Central African CFA Francs, France has an ...
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Any serious macro models for Greece's possible default or eurozone exit?

Since each news outlet says something about Greece these days, I wonder what serious economic research backs decisions made over the last seven years? The IMF papers on austerity, both early ones and ...
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Research on the link of QE and increased economic activity

Im looking for good literature of quantitative easing and the effects on economic actitivty. from a modelling perspective Any empirical research? What I am thinking of, is how much of an effect ...
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How does reverse repo rate affect money supply?

What is the impact of increase/ decrease of reverse repo rate on Monetary Base, Money multiplier and therefore, overall money supply?
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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 ...
Iron filings's user avatar
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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 ...
Jenny110's user avatar
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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 ...
Wittgenstein's Poker's user avatar
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Taylor rule estimation with OLS serial autocorrelation

I'm estimating the equation: $$i_{t}=\beta_0+\beta_1\tilde\pi_t+\beta_2\tilde y_t+\varepsilon_t$$ Where $\hat\pi_t=\pi_t-\pi^{target}$ and $\hat y=\ln y_t-\ln y^{\ast}$, are the inflation deviations ...
manifold's user avatar
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What is liquidity overhang?

I read in an economics article the following: RBI Governor has decided to keep the unwinding of monetary policy gradual, calibrated, and non-disruptive while remaining supportive of the economic ...
Krishan Sai's user avatar
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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 $$U=\sum\beta^t(ln\ c_t+Al_t)$$ ...
Maybeline Lee's user avatar
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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 ...
Andy's user avatar
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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} +...
dhs20393541's user avatar
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Log deviation from steady state - understanding a journal paper

I hope a question like this is fair game on this website! I'm doing some research for my thesis, and have come across what seems to be a pretty simple model - two countries, A (representing the USA) ...
user3822171's user avatar
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51 views

Micro foundations of the Phillips Curve

In a typical NKPC: $Inflation_t = \alpha_1 Inflation_{t-1} + (1-\alpha_1) \mathbb{E}_tInflation_{t+1} + \alpha_2 RealMarginalCost + \epsilon_t$ From a micro-foundations perspective, does the ...
Ramy Oraby's user avatar
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47 views

Why is there a big change in the money supply at the beginning of each month?

I was watching Argentina's daily change in monetary base for a selected period and there is a clear spike at the beginning on each month. Then during the month it slowly goes down until reaching ...
Anna's user avatar
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What is the privilege of a primary dealer?

Primary dealers have a privileged position, so there is value in being registered as a primary dealer. - https://economics.stackexchange.com/a/13450/8387 I was previously under the assumption that ...
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How does the Fed choose its asset purchase rate in an ample reserves era?

The St. Louis Fed's article "A New Frontier: Monetary Policy with Ample Reserves" states that the Fed now uses the IOER and ON RRP rates to set the FFR, instead of open market operations, which are no ...
alexchandel's user avatar
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25 views

Who profits from monetary expansion?

Is my understanding correct: In history (ancient, medieval) money was directly created by governments, therefore any monetary expansion meant 100% net profit for government, which could be used to ...
Prokop Hapala's user avatar
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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 ...
Dominic Lee-Lindsay's user avatar
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Why did the rate of money supply growth increase 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 ...
Ulysses Li's user avatar
2 votes
1 answer
234 views

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 ...
DarcyThomas's user avatar
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30 views

Scholarly papers on Cryptocurrencies/Electronic Money

Does anyone know of any peer-reviewed papers on the topic of Cryptocurrency or Electronic Money and its acceptance and practice in the financial market? Thanks!
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Can the central bank interest rate policy still control inflation?

Historically, central banks have been using interest rate policy to control inflation. In current times, most rates have been going ever lower, but it seems to be incapable of driving inflation up. ...
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Fed hikes rates - what will happen in Europe?

There's been a lot of talk about the Fed hiking rates soon, and this should be inevitable within the next few months. In the longer term (let's talk about the next 2-5 years), the rates are probably ...
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Impact of Fiscal and Monetary Policy during Great Recession on U.S. Economic Performance

What major fiscal and monetary policy actions were taken during the Great Recession (2007-2009)? What impact did they have on U.S. economic performance? I understand how how the recession occurred in ...
Amy's user avatar
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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 ...
Raul Guarini Riva's user avatar
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39 views

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 ...
Right_4ever's user avatar
1 vote
1 answer
43 views

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 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 ...
Man Dem's user avatar
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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 ...
Giorgetto's user avatar
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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 ...
Wittgenstein's Poker's user avatar
1 vote
1 answer
84 views

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 ...
Garbonzo's user avatar
1 vote
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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.
EHMJ's user avatar
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1 answer
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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 ...
user43884's user avatar
1 vote
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65 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 ...
Luke Puplett's user avatar
1 vote
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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 ...
Agnishom Chattopadhyay's user avatar
1 vote
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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 ...
Redsbefall's user avatar
1 vote
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21 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 ...
Arash Howaida's user avatar
1 vote
0 answers
12 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 ...
Ash Rivers's user avatar