11

Actually they're saying that, when cash is available, people need not to deposit their money into the bank, and hence is "guaranteed" (not taking into account risks associated with holding on to cash, like fire or getting stolen) a 0% interest rate. Having cash, therefore, means that if the deposit rate goes into the negative territory (you're charged to ...


8

What is the purpose of monetary expansion in this environment? Avoiding (and preventing future) supply and demand shocks The purpose is to keep as much as possible markets (labor related, of goods and services, etc...) in their pre-crisis configuration -- imperfectly admittedly -- with the intention of avoiding and preventing future post-crisis supply and ...


5

The Treasury continuously issues new debt, and retires matured issues. (This is called “rolling over debt.”) The Treasury has no right to pay debt off early (“refinance”). The closest thing that can be done is to repurchase debt. The Federal Reserve - whose common equity is owned by the Treasury - is repurchasing debt during “quantitative easing” operations.


5

First, let me address some incorrect premises in your question Usually economists say that in recession there is deflation, so increasing the money supply does not lead to high level of inflation. This statement is not really correct. First, I dont know many economists who would say that usually recessions are deflationary. For example, according to Romer'...


5

The quantity theory of money (QTM), $$P=\frac{MV}{Y},$$ is usually used to say this: Consider these three Assumptions: Output $Y$ is growing at some fixed rate (for simplicity, let's say $0\%$ per annum). Velocity of money $V$ is constant (i.e. also growing at $0\%$). Money supply $M$ is growing at some fixed rate (let's say $2\%$ per annum). Suppose the ...


4

(There is a longer answer by @keepAlive that covers economic theory.) From a practical perspective, the effect of rate cuts is debatable. In most countries, central banks have undertaken lending programmes designed to avoid cascading defaults in the financial system. This is not designed to cause economic growth, rather to avoid the collapse of activity ...


4

At present, this question resembles three questions. Are people on the internet saying incorrect things about bank money creation? Is money creation by banks fraudulent? Is money creation by banks limited by the fact that deposits are bank liabilities? These are questions that mainly do not fit the desired format of this website, so I will handle them very ...


4

This is veering into the direction of an opinion-based answer, but I would argue that there is no particular evidence that the Fed “needs” to reduce the size of its balance sheet. If the Fed wanted to revert to its pre-2008 mode of operations - where interest is not paid on reserves - it would be required to reduce its balance sheet so that there are no ...


4

No, accumulating money is not pointless. Money not being the source of value does not lead to it being of no value. Money, including the type we use right now -called "fiat money"-, has 3 properties. It is an accepted tool for carrying out transactions. It is a way to measure a product's value. It is a store of value. The 3rd point is the one you'...


3

No, you didn’t. All money is debt, but not all debt is money. There are two easy ways of thinking about this. The first is to think about the properties of money: unit of account, store of value, medium of exchange. Focusing on the latter two: Is the money you owe to me a good store of value? No offense, but I’d rather have cash or keep it in an insured ...


3

I actually found a model that proposes an estimator of CPI increase from a QE "unit" (relative to GDP), but this is based on ECB's intervention (which came pretty late compared to others). This is a New Keynesian DGSE with QE as an estimated AR(2) process. The "initial shock" is a 1% increase in ECB's bond-long term bond holdings, relative to quarterly GDP. ...


3

Investors are not paying to hold Treasury bonds (yet), nominal yields are still positive (but that could change...). All that is happening is that inflation-protected securities are guaranteeing a return less than CPI inflation. This is not that much of a mystery: there is no way to buy the CPI index (other than trading inflation derivatives). You can buy ...


3

Yes they are "gift" (or rather a stimulus), but not exclusively to the 0.1%. There's basically "trickle down" by inflating the M2 money supply, i.e. bank loans, which hopefully include loans to companies where the "average guys" work. So in theory, banks have more funds to lend, at a low rate of interest, encouraging households ...


3

Quite obviously, the act of creating and depositing the coin can't possibly impact anything of economic interest (except for creating an imperceptibly small increase in demand for platinum and hence an imperceptibly small increase in its price). The impact comes when the government starts to make withdrawals and spend money. And the nature of the impact ...


3

While there certainly is some inflationary pressure from these measures, it seems like the missing demand and investment as well as the decrease in investments from both households and firms is offsetting this effect entirely. However, this might change in the long run, when the lockdowns will be lifted. Some authors argue that we will be facing a strong ...


3

Money markets are where financial institutions and corporates access short-term funding. One money market where the Fed has intervened directly is the overnight repo market where overnight loans ("repurchase agreements") are made in exchange for high quality collateral such as Treasuries. It is arguably the most important money market in the world, with ...


3

This question cannot easily be answered. If we look at historical societies, bond markets appeared in eras where was a central bank, most importantly, the Bank of England. During the Gold Standard, notes were not 100% gold backed. If we look at earlier eras, customs were very specific to a culture. For example, there were eras which were largely non-...


2

In the present legal environment it's not possible for a country to exit just the Eurozone voluntarily, by itself. The only sure way is the complicated scenario in which a country would leave the EU and rejoin it without rejoining the Eurozone; it is so far out there that I doubt you can find any serious economic analysis of it. A few other scenarios have ...


2

If we are talking about a government indulging in printing their own US currency then there are two issues with it: For any large scale purchase or buying, they use marked currency of a certain series. Say, a country wanted to buy a few fighter jets or crude oil worth a few hundred millions then the recipient country would not only ask for marked currency ...


2

Real interest rate = Nominal interest rate - Expected inflation Reducing the nominal interest rate by more than the decline in the expected inflation, with respect to the inflation target, leads the real interest rate to go down. When the real interest rate goes down, the real exchange rate depreciates, both lead real monetary conditions to loosen. [Real ...


2

@EnergyNumbers has said the answer in the comments but I want to make it crystal clear what it means as I think this misconception of fractional reserve banking may be widespread. First, banks can lend to other banks. There is no shell company involved unless for some other reason. Second, banks can lend to other banks, which then can lend back to the ...


2

Yes, the data is weighted based on the population size of the area from which it came. The survey designers employ a method called stratified random sampling, which ensures that the prices of goods selected for the sample are distributed across all areas (rather than by chance landing up concentrated in a few areas). Then, the prices in each stratum are ...


2

However will that not in turn cause the bond prices to drop Low yields provide incentives for people to sell bonds in exchange for cash. And they do. However, bond prices will not drop if there is a counter-acting amount of buying. Who is that buyer? The various central banks that are causing the liquidity trap in the first place. If that sounds counter-...


2

In short, the belief this reflects is that cheap money is spent more freely. Since GDP counts the sum-total of value-added transactions in the economy, in principle this means that monetary policy affecting the velocity of money can in turn affect GDP. Theoretically, this is valid to the extent that debt-servicing costs are a significant friction in the ...


2

For time series analysis a classical text is the time series analysis from Hamilton - although nowadays the text is slightly outdated it has an excellent and detailed overview of models that are still in use or serve as basis for more advance models. The time series and panel data econometrics from Pesaran is also excellent - it’s also more contemporary but ...


2

1) The phrasing you use is somewhat non-standard, but it seems close to the correct view. The U.S. Treasury borrows by issuing bonds. What people loosely call “printing money” (a badly defined phrase) is that the Federal Reserve buys those bonds from their owners. The original owners of the bonds “lent” the Treasury the money, and the Fed just takes the ...


2

One standard way of determining the fair value of a bond yield (for a country that controls the currency it borrows in) is to say that it is the sum of two factors. The expected (Geometric) average of the overnight rate (that is set by the central bank) over the life of the bond. This equals the expected return of holding money market instruments instead of ...


2

I am by no means an expert in monetary policy, but this is how I understand it. An increasing demand for dollars implies that more people want to trade the local currency for dollars. The supply of the local currency then increases while demand for it decreases, implying that the currency will depreciate.


2

It seems to refer to the free coinage act of 1666 introduced by British Parliament under the rule of Charles II. The name of the act was: An Act for encourageing of Coynage. But it is often referred to as free coinage act. The full text of the act can be read in this source. According to the act: Gold and Silver to be coined gratis. For every Pound ...


2

At the time of writing this answer, the Federal Reserve pays 0.1% on reserves: link to Fed webpage. Banks have no incentive to lend Fed Funds at rates below 0.1%, as they can keep the excess reserves and earn a higher rate of interest. Interest rates are largely set by price signals made by central banks, not quantities.


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