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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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
17 votes
5 answers
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 ...
matcheek's user avatar
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16 votes
12 answers
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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. ...
Tamila Ambeon's user avatar
16 votes
3 answers
3k 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 ...
Marko Amnell's user avatar
16 votes
5 answers
3k 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 ...
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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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11 votes
4 answers
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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 ...
sinθ's user avatar
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10 votes
3 answers
3k 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 ...
Allure's user avatar
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10 votes
2 answers
576 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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4 answers
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Can someone explain why sterling-dollar parity is bad?

Please forgive the probable naivety of this question. I am not an economics student I am just trying to understand the currency fluctuations that are currently occurring with GBP as a result of our ...
thomasbishop's user avatar
8 votes
3 answers
297 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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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
8 votes
2 answers
471 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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2 answers
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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.
Victor's user avatar
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2 answers
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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
2 answers
153 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". ...
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7 votes
2 answers
397 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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7 votes
2 answers
854 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 ...
Jamzy's user avatar
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7 votes
1 answer
332 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 ...
Zee's user avatar
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6 votes
4 answers
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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 ...
Charles Clayton's user avatar
6 votes
3 answers
275 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?
guest0690's user avatar
6 votes
3 answers
288 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 ...
Ubiquitous's user avatar
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6 votes
1 answer
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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 ...
guestguestguest's user avatar
6 votes
3 answers
612 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 ...
user3386109's user avatar
6 votes
2 answers
689 views

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 (...
elemolotiv's user avatar
6 votes
7 answers
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 ...
curious's user avatar
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6 votes
3 answers
205 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
6 votes
1 answer
2k 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 ...
Turing Machine's user avatar
6 votes
1 answer
148 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 ...
Amy's user avatar
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6 votes
1 answer
362 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 ...
Alexandru's user avatar
  • 273
6 votes
2 answers
199 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 ...
GS - Apologise to Monica's user avatar
5 votes
2 answers
592 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 ...
HRSE's user avatar
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5 votes
1 answer
970 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
5 answers
454 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
5 votes
2 answers
722 views

Does Modern Monetary Theory (MMT) provide a useful insight into how to manage the economy?

According to advocates of [Modern Monetary Theory][MMT] (MMT), the primary risk once the economy reaches full employment is inflation, which can be addressed by gathering taxes to reduce the spending ...
Slarty's user avatar
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5 votes
2 answers
263 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 ...
gerrytan's user avatar
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5 votes
2 answers
107 views

Given a large increase in the price of an essential good, can suitable monetary policy keep average inflation very low?

Suppose there is a very large increase in the world price of an important good which is essential for many people, such as the increase in price of natural gas over the last year or so. Considering ...
Adam Bailey's user avatar
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5 votes
1 answer
589 views

Why doesn't conventional monetary policy involve long-term interest rate targets?

Another way to phrase my question: why doesn't conventional monetary policy include manipulation of long-term interest rates? This question might sound "weird" at first glance, but please ...
J Li's user avatar
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5 votes
1 answer
298 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
3 answers
952 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 ...
user avatar
5 votes
1 answer
94 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 ...
Amy's user avatar
  • 171
5 votes
4 answers
592 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 ...
Diego Jancic's user avatar
5 votes
2 answers
326 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 ...
Mick's user avatar
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5 votes
1 answer
235 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,...
An old man in the sea.'s user avatar
5 votes
1 answer
127 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 ...
Harry Wells's user avatar
5 votes
2 answers
628 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
1 answer
86 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 ...
Kamil Jędryczek's user avatar
4 votes
3 answers
871 views

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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