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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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 ...
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454 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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56 views

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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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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29 views

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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81 views

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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38 views

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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2answers
1k views

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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38 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 ...
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16 views

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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39 views

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 ...
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55 views

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 ...
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44 views

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 ...
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248 views

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 ...
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29 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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78 views

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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59 views

Monetary Transmission in New Keynesian - Euler Equation

I get that NK model basically consists of the three equations: Taylor rule, Dynamic IS curve and the NK Phillips curve. I want to know the effect of nominal interest rate reduction on the ...
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1k views

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 ...
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1answer
37 views

Does a negative interest decrease the money supply?

If there is less money, its value increases. There is less liquidity when there is less money. Does a negative interest decrease the money supply? Especially when people don't need money: they saved ...
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21 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 ...
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1answer
34 views

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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29 views

How does the central bank fund open market operations?

This may seem like an extremely simple question, but I have been unable to find any satisfactory information on this. How, practically, does the central bank generate the funds to purchases ...
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22 views

Does the European Central Bank still conduct monetary policy under the assumption of NAIRU?

My question is about NAIRU (Non-Accelerating Inflation Rate of Unemployment) and its relevance with respect to the European Central Bank's monetary policy. I have read somewhere that Philips Curve ...
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26 views

Why is the measured year 2018 inflation rate low despite rounds of quantitative easing?

Is it correct to state year 2018 inflation rate of 2.2% is very low? Is it correct to state that even though the commodity prices have not increased, the increased money supply coming from the ...
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87 views

How would a “one-way” fixed exchange rate backed by destroying foreign currency work?

Note: This question may seem really pointless, but it's actually in the context of a cryptocurrency idea I am developing, but I posed it this way as the question is not really about cryptocurrencies ...
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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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161 views

Friedman rule vs Friedman's k-percent rule

Friedman has stated in his "k-precent rule" that the money supply should increase by a fixed percentage each year. On the other hand, the "Friedman rule" states that the nominal interest rate should ...
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2answers
367 views

What is the effect of expansionary fiscal policy in case liquidity trap situation?

I've read that liquidity trap means interest rate is at its minimum and increase in real money stock will not lead to fall in interest rate because people will be demanding whatever the amount is ...
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43 views

Questions about Paul Krugman's 1998 Japan Analysis

I'm reading some of Paul Krugman's writing on Japan and the liquidity trap; specifically this article: Japan's Trap. However, I'm not an economist (just an enthusiast) so I have some basic questions. ...
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23 views

In a closed system, what is the relationship, if any, between currency supply and market capitalization?

Assuming: A world in which the market value of publicly traded companies is known Any transaction to buy or sell stock of said companies can only be consummated with a new currency X, which is freely ...
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77 views

Why does not the Bank of England set the Libor?

In a report by the BBC, it emerged that the Bank of England suggested some banks to lower the Libor, around 2008. The Libor is normally set by commercial banks, and it is directly affecting mortgages ...
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35 views

Why in some models the Friedman rule is not optimal?

I want to know why in some models the Friedman rule stops being optimal. For example, in some models like MIU or CIA, where usually you don't have leisure, the Friedman rule is optimal. But in other ...
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55 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 ...
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49 views

“Social Credit” and “Positive Money” schemes: what are the economic critiques?

Starting with reading Robert Heinlein's Beyond This Horizon many years ago, I've run across the "social credit" schemes. Most recently, it appears to hve shown up again in the ideas on http://...
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39 views

Ultralow interest rates and bubbles

We've had ultralow interest rates for a very long time now (I think unprecedented in history). Is it possible that this extremely loose monetary policy is creating bubbles? Bill Gross has put out a ...
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27 views

Which of the possible monetary policy channels is there empirical evidence for?

There are many possible monetary policy channels. These channels are the different ways that changes in the Fed's interest rates can affect the economy: exchange rate depreciations, business ...
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26 views

Understanding the current monetary context in terms of the classics?

I find the current monetary context unprecedented and baffling. On one hand there is no significant inflation, or even deflation. This is occurring against a backdrop of continued dollarization; many ...
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20 views

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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1answer
73 views

Question on Open Market Operations

I have a very basic question on the somewhat cryptic Open Market Operations. So, from what I understand, say the Fed wants to reduce interest rates (increase monetary base). It will firs buy a bond by ...
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1answer
104 views

Ben Bernanke Portfolio Balance Effect

I have a question based on reading some speeches and research papers, mainly by Ben Bernanke, on the portfolio balance effect. Here is Bernanke in a recent paper he authored where he describes the ...
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Brainard on ELB Policy

In this speech, FRB Governer Lael Brainard suggested the following approach to monetary policy at the Effective Lower Bound: .....I have been interested in exploring approaches that expand the ...
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bank lending channel and bank capital channel: mechanism step by step

In any definition of these concepts, I miss the first step: how exactly does expansionary or contractionary (rate changes, req. reserve changes, ... ) monetary policy affect bank deposits and bank ...
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What was the difference between the UK government’s special liquidity scheme and quantitative easing?

How exactly were the two schemes related and was the lending of treasury bills the same as electronically creating money to buy bonds?
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Forward exchange rates and inflation

Looking at forward rates, the exchange rate for the currency with the higher interest rate gets worse over time. This makes sense or else there would be an arbitrage opportunity to borrow in the low ...
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21 views

How does monetary policy affect inequality?

My thought process here would be that since government bonds are usually held by the richer households, buying of these government bonds would inject a large amount of money only to the richest, thus ...
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43 views

which policy (fiscal or monetary) is better to stabilize the cycle?

I am currently studying for a test and the following sentence "In an open economy with high capital mobility, monetary policy is preferable to fiscal policy to stabilize the cycle", the "answer" is ...
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23 views

What is a monetary policy shock?

I am trying to understand some basic stuff about New Keynesian models and monetary policy. Despite that almost every single paper on monetary policy talks about monetary policy shocks, I still don’t ...
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Why the historically narrow asset class purchases from QE

Let's begin by mapping out some context by assuming the following goals of implementing QE: prevent dire systemic liquidity concerns reach inflation targets manage expectations in the private sector ...
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8 views

Currency board, why the fluctuation in local currency

I have very basic question about currency boards: Assume that a country floats a new local currency "N" with the currency board model. It uses USD as the reserve currency. To begin with 1 N = 1 USD. ...