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.

Filter by
Sorted by
Tagged with
27
votes
6answers
4k views

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 ...
27
votes
4answers
3k views

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?
15
votes
5answers
2k views

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 ...
15
votes
5answers
2k views

How can banks pay interest to the central bank?

If the central bank is the only institution that can increase the monetary base (create both, digital and paper money), how can any institution that borrows from it (mostly banks) satisfy its interest ...
14
votes
3answers
2k views

Should Finland leave the eurozone?

Finland's economic recovery from the shock of the global financial crisis of 2007–2008 has been very weak. The country has been in recession for the past three years, with GDP expected to expand by ...
13
votes
4answers
4k 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 ...
10
votes
1answer
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 ...
8
votes
3answers
2k views

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 ...
8
votes
2answers
829 views

What is the purpose of monetary expansion during an economic lockdown?

Recently, most developed countries central banks substantially lowered their base interest rate. In Australia, this is now at their stated lower bound of 0.25%. We also have QE. This is all in an ...
8
votes
2answers
448 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 ...
8
votes
2answers
495 views

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, ...
8
votes
2answers
6k views

What is the advantage and disadvantage to have a high value of USD for USA?

What is the advantage and disadvantage to have a high value of USD for USA? China and Japan always want to keep their currency low as oppose to USA.
8
votes
4answers
12k views

Why does savings equal investment (scenario)?

Scenario 1: There's an economy of two people (Joe and Amanda). Joe buys a 500 dollar car from Amanda (which she made herself from raw materials in her back yard). Amanda takes the 500 dollars and ...
8
votes
2answers
138 views

How/why does foreign investment get scared by the monetary policy?

In an interview with Daron Acemoglu, he says "the hot money which was floating through Turkey has stopped after FED's declaration that we are going to give much more attention on monetary policy". ...
7
votes
3answers
199 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 ...
7
votes
3answers
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 ...
7
votes
1answer
329 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 ...
7
votes
1answer
229 views

Models for inflation prediction

I am looking for some statistical models that are accepted to best predict inflation rates. Anything that is more complicated than linear model will be appreciated. Or even recommend books that ...
6
votes
4answers
2k views

Does control system engineering have a place in economics?

Do central banks use some form of engineering-style PID control systems/feedback loops to implement monetary policy? I'm an electrical engineering student taking microeconomics/macroeconomics and a ...
6
votes
3answers
231 views

Quantitative Easing in Africa

I am currently doing a research work on quantitative easing and can't find any example of it occurring in Africa. Have any African central banks ever used QE?
6
votes
3answers
230 views

Fractional reserve banking and the value of someone else's currency

Suppose there are two countries: $A$ and $B$. $A$ is a large, stable, democratic country with its own currency, the dollar. $B$ does not have its own currency. All prices and financial transactions in ...
6
votes
3answers
574 views

Effect of a US Federal Reserve rate hike on the Dow Jones Industrial Average

There is speculation that the Federal Reserve of the United States will raise interest rates by 0.25% in the near future. What is the expected effect on the stock market if interest rates do rise by ...
6
votes
1answer
120 views

Why doesn't the ECB implement the same fiscal and monetary policy that the FED used to save the US economy?

If the Fed managed to save the US economy with their liberal expansionary policy, why doesn't the ECB follow suit if it is much more efficient in reducing unemployment etc? Also, why did ...
6
votes
2answers
139 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 ...
6
votes
1answer
826 views

Australian Dollar Devaluation

I am a layman in economics. I am curious about the current devaluation of Australian Dollar in comparison with the US Dollar. Could someone please explain, in simplest words possible: What causes ...
6
votes
1answer
327 views

How is monetary policy sustainable, or even fair, in the current economy? [closed]

I've just read Money Creation in the Modern Economy, an article published by the Bank of England. I'm trying to wrap my head around this from multiple points of view, since it brings about a lot of ...
6
votes
2answers
193 views

How might the Swiss currency floor be unwound?

The Swiss National Bank has been enforcing a currency floor since 2011, not allowing the EUR/CHF rate to drop below 1.20 by buying unlimited amounts of foreign currency as needed with newly created ...
5
votes
2answers
576 views

Why do central banks currently favor cheap money policies?

Currently, central banks around the world are setting very low interest rates. According to Taylor rules, which most central banks can be shown to roughly follow, this implies that they believe that ...
5
votes
5answers
423 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 ...
5
votes
2answers
324 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. ...
5
votes
7answers
1k views

Why didn't the money printing by the US Federal Reserve since 2008 lead to inflation?

http://www.telegraph.co.uk/finance/comment/liamhalligan/8484530/Americas-reckless-money-printing-could-put-the-world-back-into-crisis.html America's reckless money-printing could put the world back ...
5
votes
1answer
90 views

What impact did monetary policy actions taken during the Great Recession (2007-09) have on U.S. economic performance?

What impact did monetary policy actions taken during the Great Recession (2007-09) have on U.S. economic performance? Quantitative easing and unconventional policy actions such as asset purchases and ...
5
votes
2answers
180 views

Unlimited supply of national currency?

I was reading this article about Denmark central bank defending its currency peg: http://www.bloomberg.com/news/2015-01-22/denmark-cuts-key-deposit-rate-to-minus-0-35-to-drive-down-krone.html In it ...
5
votes
4answers
411 views

Inflation reasons beyond Friedman

I think everyone know this Friedman's quote nowadays: Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the ...
5
votes
1answer
124 views

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 ...
5
votes
1answer
68 views

How and on what basis the inflation target is determined?

I have a question at the intersection of Economics and Politics. Every country has her own inflation target. But who, how and on what basis is it determined? Of course, we know that too big inflation ...
5
votes
2answers
420 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-...
4
votes
4answers
334 views

Greece default and why are US States not seen defaulting?

Reading various articles, it is clear that Greece is in the situation simply due to the fact that they have indulged in overspending on their national budget for over a decade, and with the 2008 ...
4
votes
1answer
908 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, ...
4
votes
4answers
459 views

Why does an economic slowdown lead to deflation?

Usually economists say that in recession there is deflation, so increasing the money supply does not lead to a high level of inflation. According to the Quantity theory of money, the price level is ...
4
votes
2answers
281 views

How does the central bank changing interest rates change interest rates in the commerical banking sector?

I understand that the federal reserve manipulates the federal fund rate in order to change interest rates in the wider banking sector. What I am struggling to understand is how the changing the ...
4
votes
1answer
4k views

Gali - Monetary Policy - Solutions?

I am working through exercises in Gali but some of them are rather difficult. I am trying to find a solutions manual to use as an aide for exercises that completely stump me and to confirm solutions ...
4
votes
3answers
372 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 ...
4
votes
2answers
81 views

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 ...
4
votes
1answer
200 views

Must total world net exports be zero?

On the Wall Street Journal Op-Ed page (Trump’s Real Trade Problem Is Money ), John D. Mueller discusses the gold standard and claims something that I've either never heard before, don't understand, ...
4
votes
2answers
181 views

Low interest rates - who benefits, rich or poor?

I just heard Andy Haldane, chief economist at the Bank of England make the following statement about the bank's ultra low interest rate policy and accusations that it disproportionately benefited the ...
4
votes
1answer
278 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 ...
4
votes
1answer
3k views

What is time inconsistency in monetary policy?

I am reading through a bit of policy literature and see authors referring often to the problem of time inconsistency when setting monetary policy. Can anyone explain what is time inconsistency? An ...
4
votes
2answers
848 views

How would the risk premium and a simplified taylor rule change the MP curve?

Ok so we're given a monetary policy rule where $$R^{CB}_t-\bar r = \bar n \tilde Y \space where \space \bar n>0 $$ and $$R_t = R^{CB}_t+\bar p $$ Where $\bar p $ is risk premium $\bar n$ is ...
4
votes
1answer
183 views

Negative interest rates - Monetary Policy

(This is 1st part of series of questions under "Negative interest rates") I've happen to stumble on two articles, with some weeks, that the central bank(CB) of switzerland, due to Russia ruble crisis,...

1
2 3 4 5
7