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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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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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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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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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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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How should one expand the information set in VAR models?

I am trying to use VAR for an undergraduate class but keep having degrees-of-freedom issues. I am using quarterly data, have 3o years of data, and have 10 time series. I want to look at the effects ...
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Why is wage-induced inflation a bad thing?

More than once, I have heard on the news how the US Federal Reserve would raise interest rates to counter the risk of inflation, even when they indicate that the potential inflation would be caused by ...
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107 views

How do central banks create money to pay interest on reserves

Referring to this answer (https://economics.stackexchange.com/a/15321/12013) for the technical process of money creation. How do central banks create the money to pay interest on its reserves (...
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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, ...
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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 ...
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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 an increase in the money supply increase or decrease interest rates?

What I understand is that an increase in the money supply brings about a fall in interest rate as there is more money available, the price of money will be cheaper. But some theory such as liquidity ...
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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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Intuition for the CES consumption index in New-Keynesian DSGE models

I don’t understand, from an intuitive point of view, the CES aggregator in the context of a New Keynsian DSGE model. I understand that the consumption index Ct is the sum of all consumption goods and ...
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Calculating monetary base from given data

I need to some data for Pakistan's monetary base. Searching through the website of State Bank of Pakistan (SBP), I found the following pdf on Monetary Statistics. I wanted to ask that can I calculate ...
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“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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How do central banks regulate the money supply to avoid inflation?

It is a tricky problem. Historically, poor control money supply led to inflation. Out of control money supply led to hyperinflation. Central banks seem to do a wonderful job in recent years with ...
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Financing U.S. government budget deficits, and their impact on interest rates

I have two questions. The first is about how exactly the U.S. government finances a budget deficit. The second is about the effects of budget deficits on financial markets and interest rates. Q1. We ...
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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 ...
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What effect would destroying large amounts of physical currency have on government finances

India has recently recalled high denomination notes and asked people to deposit the physical currency in old notes in their bank accounts. People who have unaccounted wealth are resorting to ...
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Why does Iceland have 5% interest but Sweden 0% interest with the same GDP growth?

Both countries have their own currencies, similar GDP growth and low inflation. Yet Sweden has 0% central bank interest rates while Iceland has 5%. Can someone explain?
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If I want to create my own currency model what would be the best basic options / things / ideas I need to look into? [closed]

First of all, I am from a IT background and currently writing my thesis on a system in which I am have to create a model of a nation. So to run the economy in this simulation (for now you can ...
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1answer
158 views

So what exactly happens to the real interest rate in the long run?

I have two books both written by MIT professors, Macroeconomics by Blanchard and Economics by Acemoglu. Regarding to what happens to real interest rate in the medium/long run after the central bank ...
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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 ...
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How does the taylor rule make the MP curve upward sloping?

I know it's because $\bar n \tilde Y$ is added in but isn't the MP curve chosen by the government?
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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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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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How monetary policy affects bank reserves

In discussions of the "credit channel" in the transmission of monetary policy, I've read that increasing the policy rate reduces bank reserves. Can someone explain how this happens?
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Adaptive expectations

I know expected inflation plays a key role in both the Phillips curve equation and the Fisher equation, but does it also play a key role in Taylor's Monetary Policy Rule? I'm asking this as I have an ...
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Helicopter Money: a tax on banks?

In this text of voxEU, the author are trying to explain why helicopter money will not have it's expected effect. For that conclusion they try to explain the different schemes on how Central Banks pay ...
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Is there any scientific proof that 2%-3% target inflation rate is ideal?

There are a couple of central banks (RBA, Federal reserve for example) that use inflation rate as a key indicator to regulate their official cash rates. Those target inflation rates usually range ...
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Why do Reserve Banks only move in 0.25 basis point 'leaps'

It seems to me that a lot of uncertainty is created by Reserve Banks spending 5 months telegraphing "I'm gonna do it, I'm gonna raise rates", as is currently seen in the USA. This seems to be the ...
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Monetization of everything, where does it end?

The newest trend in global finance is elite monetization, meaning monetization of all elite assets such as top corporations and municipalities. Central banks are buying the stocks and bonds of elite ...
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What stops a government in partnership with its central bank from lowering interest rates and then borrowing at this lower rate to fund investments?

For example, in the UK, after the Brexit vote, the Bank of England decided to lower reserve interest rates to 0.25%. This, as I understand it, has the knock on effect of lowering the interest rates of ...
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Demand-pull inflation intuition

According to the theory, monetary growth increases inflation. But how do companies know that there is more money in the economy now than before?
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Does the PBoC work like the Fed in having meetings where they discuss changes in monetary policy?

The Fed has a specific schedule to its meetings about changing the Fed Funds Target Rate, does the PBoC perform the same as well?
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How exactly does a central bank determine how much to cut/increase interest rates?

We all know under what circumstances a central bank tries to cut interest rate and when it tries to increase interest rates, but how do those people know exactly by how much it should change? I mean, ...
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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 ...
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Monetary Policy adjustments as a result of Brexit [closed]

I would like to know the impact of interest rates within Monetary Policies in view of Brexit. An increase in the Monetary stock would lead to a decline (at least in the short-term) in nominal ...
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281 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. ...
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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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What is the list of countries where the central bank prints money?

Is there a list of the countries where the central bank is creating money, today ? How much ? We know for: EUR: Euro countries (since ECB QEs) (and euro-bound countries as DKK ?) YEN: Japan (BOJ '...
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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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Money supply control vs. interest rate control

In a macroeconomics book I'm reading, the author talks about money supply control vs. interest rate control as two different approaches in monetary policy of a central bank. With the goal of price ...
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123 views

The independence of Central Banks [closed]

How do such digital currencies such as Bitcoin affect the independence of Central Banks? Thank you
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What is the logic the Fed used for paying interest on reserves?

During the last few years, the Fed has been paying banks interest on reserves. Its a strange policy if you want banks to invest their money in the real economy. Why did they do this? Is it a way to ...
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Monetary policy optimization

I was wondering if anyone could give me some advice / lectures / introduction to stochastic optimization that could be applied to monetary policy. I have heard of the Dynamic stochastic general ...
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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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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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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-...