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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70 views

Cons of printing more money but not injecting in the system directly

So I don't know if this might be the right place, if it isn't I'd appreciate if anyone can link me to the right place. Anyways here is the question. I've read up on what are the cons of printing more ...
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Tax system is progressive or regressive

Let´s discuss a little! When the direct effect of a tax or transfer policy (compared to what would happen in the absence of the policy) is a reduction in inequality, it is called progressive policy. ...
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How does the money supply grow in the long term?

For inflation to happen at roughly 2%/yr and for people to trade the same (or higher) volumes of goods, people must be trading more money. For such a trend to exist in the long term, there must be ...
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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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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 ...
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476 views

Why do many economists believe that money is neutral in the long run?

If a central bank carried out monetary policy that consisted of multiplying each person's wealth by a common factor, I would find it plausible that all prices would get multiplied by the same factor ...
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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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Hyman Minsky's view on Bank Examination

In Stabilizing an Unstable Economy (1986), Hyman Minsky argues that "bank examination is largely perfunctory... rather than an inquiry into the economic viability and the exposures to risk of banking ...
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By what steps and contracts does new money enter the economic system?

Like many noneconomists who read about economic history and finance, I always remain somewhat baffled by the opaque generation of currency under the federal reserve system. My understanding is that ...
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What would be the effect on the economy if the United States legalized counterfeiting?

If today the United States legalized counterfeiting, what would be the effect on the economy? The counterfeit must look authentic to be legal, thus requiring some skill.
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Why does a stronger currency have a tightening effect on economic conditions?

http://www.economist.com/blogs/buttonwood/2015/12/central-bank-predictability Ever since 1987, banks have been willing to cut rates when markets have wobbled. Driving down bond yields has been an ...
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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 ...
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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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Expectation augmented Phillips Curve

Currently studying Intro to Macroeconomics, and faced Expectations augmented PC. In my textbook it is not clear how expected inflation affects unemployment. My view so far, is that expected inflation ...
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568 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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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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Printing money to redistribute wealth

A fictional country has 100 people. The total printed money is $2000. Ten rich people own half of it ($100 each), the remaining ...
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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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Why is the rising price of a commodity inflationary, while the rising price of money is disinflationary?

Everybody buys oil and everybody borrows money. If the price of oil goes up, we call that inflation and the central bank uses monetary policy (rising interest rates) to reduce inflation. Why is the ...
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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 ...
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How is it economically responsible to destroy proprty which has value? [closed]

precursor: bitcoin.stackexchange.com/q/1851 How can it be economically responsible to destroy property which has value? If a property is destroyed (which is the right of the property holder in most ...
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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 it. I'd like to know if this would work, as I see if offers many advantages over our debt-based monetary system today. A ...
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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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Confusion about the effect of an increased expected inflation on the price level

In Mankiw's Macroeconomics 7th edition, on page 99, there is the following equation, which states that "the price level depends not only on today’s money supply but also on the money supply expected ...
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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 ...
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Considering how USD enters the market, is the USD actually unbacked? Could the USD represent a unit of a “fund” of securities held by the Fed?

From my understanding, all new money enters the market either 1) by the Fed lending it to banks, so the Fed essentially owns bonds in the exchange, or, 2) The Fed purchasing other financial assets. So ...
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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 ...
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What are taxes for since law forbids printing of money?

This question bothers me for a long time: why government keeps up with the taxes instead of with printing money? This would decrease its operating costs, simplify law and generally raise comfort of ...
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Does Not Having a Fractional Reserve System Cause More Inflation?

It is my understanding that countries without fractional reserve requirements still have capital requirements, but what I do not understand is how equity can be used to satisfy these requirements ...
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Financial markets, money demands [closed]

How can an increase in the interest rate make bonds more attractive and reduce their price?
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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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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 ...
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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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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 ...
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What is the logic of Bagehot's policy of high interest rate?

I have a doubt about monetary policy, as suggested by Walter Bagehot. He wrote a book "Lombard Street" in 1873, to comment on a recent banking crisis. There he recommends these measures to stop a ...
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How does the bank of Canada define “output”

Im trying to replicate the forecasts of this VECM model presented by the bank of canada in The M1 Vector-Error-Correction Model: Some Extensions and Applications Context (from page 24 in the pdf). ...
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Why would Switzerland, with its export-driven economy, worry about weakening against the dollar?

I was reading about the SNB's decision to abandon the peg in 2015, and among the various articles I read, one from CNBC quoted the SNB president saying the following "The euro has depreciated ...
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How to formulate that a factor may influence a variable or the changes in that variable?

I wonder how to formulate how that multiple factors (for instance an announcement of Central Bank A, B and C) may influence a variable. For example, consider the following formula: $$\Delta I^n_t = f ...
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Does the separation of FinCEN, and The Federal Reserve protect the integrity of a representative democracy? [closed]

From my understanding, FinCEN is controlled or heavily influenced by the UN. In addition, The Federal Reserve is not a governmental body, yet it has appointees from the current administration. I'm ...
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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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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,...
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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 ...
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Negative interest rate and land

I currently deal with interest rate theories, reading amongst others Paul Samuelson (1958) and Peter Diamond (1965). In Samuelson the possibility of a naturally occuring negative interest rate is ...
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Do banks make profits by selling bonds to the central bank?

I am a bit puzzled by the quote below, from here (emphasis mine): Modern monetary theorists have helped clarify the obvious point that private banks are not essential to the design of the system. ...
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Link between supply of domestic assets and monetary policy

From Treasury's Oct'2016 FX policies report: Switzerland’s economic policy situation is distinctive given its relatively small stock of domestic assets, which limits monetary policy options to ...
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How and when did the public learn of monetary policy changes before FOMC announcements and press conferences?

I've been reading about the Federal Open Market Committee's announcements of monetary policy decisions, specifically the time at which the announcements are made and then how the markets somewhat ...
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Fed, Asset prices, and the Economy

Often you hear people speak about how the Fed has created a fake economy, or one that is propped up with their support, and that they have artificially raised asset prices. What does this exactly mean?...
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Europe Quantitative Easing

Okay, this is from latest events. Countries like USA & Japan have successfully used QE to stimulate the economy, but what stops European Central Bank from implementing it? If they decide to use ...
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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 ...
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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 ...

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