# Tag Info

## Hot answers tagged monetary-policy

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Does Modern Monetary Theory (MMT) provide a useful insight into how to manage the economy? That depends on your definition of MMT, because it is not generally agreed on what it even is. You will find some arguing it is just a macro/monetary theory (such as the Wikipedia page) but then I seen MMT proponents on this site arguing it is a whole new paradigm ...

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An excellent overview of not just monetarist view on this issue but all other mainstream views on monetary policy at zero lower bound (ZLB) can be found in Ullersma (2002) The Zero Lower Bound on Nominal Interest Rates and Monetary Policy Effectiveness: a Survey - which is an excellent literature review on this subject (albeit slightly dated). In short, ...

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You ask for sources on MMT and then sources on development of monetary theory. I don't know about the former (but I know there are some users here who are fans of MMT so hopefully they will hook you up with some good sources) but when it comes to the latter then a classic text that covers development of contemporary monetary theory is Walsh Monetary Theory ...

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This was due to the idea of liquidity trap, and due to Keynes thinking that in economic recession it is easy for an economy to slip into the liquidity trap. Liquidity trap is a situation where preference for holding cash becomes virtually infinite. Keynes (1936) in the 'General Theory' states: There is the possibility...that, after the rate of interest has ...

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You have to make distinction between short-run and long-run. Short-run: In short-run money is not neutral, meaning that in short-run money and other nominal variables can affect real output. A one example why this is true are sticky wages. In presence of sticky wages wages (for example due to nominal contracts that take time to renegotiate) a fall in money ...

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For Modern Monetary Theory, this is a list of textbooks/books that I used in a primer. Macroeconomics, by William Mitchell, L. Randall Wray, and Martin Watts. Red Globe Press, 2019. ISBN: 978-1-137-61066-9 (Note: This is an undergraduate text, and is an overall heterodox approach to economics. Would need to be supplemented by more advanced materials for ...

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As argued by Ho (2014) the silver standard helped China because downward trending silver prices were producing mild inflation during the period 1929-31 and also helped to devalue exchange rate between gold and silver. First, as already discussed in this Economics.SE answer, mild inflation is important for an economy to avoid excessive unemployment due to ...

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According to advocates of MMT, the primary risk once the economy reaches full employment is inflation, which can be addressed by gathering taxes to reduce the spending capacity of the private sector. This statement is in accord with MMT, and it can be traced back to the concept of Functional Finance. One could do a search for Abba Lerner’s articles on ...

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During QE what prevents the banks from selling government debt to invest in the stock market instead of lending out the money? Nothing. Depending on which country we are talking about there might be a regulation preventing/limiting some banks investing in a stock market, in order to make banking sector less prone to collapse. For example, Basel rules ...

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tl;dr Yes it is possible, in fact it is possible even under the most basic macroeconomic consumption models (see chapter 8 in Romer's Advanced Macroeconomics textbook). This is because price change at any market (and interest rate is just price for savings) will always cause two effects. A substitution effect and income effect. Lower interest rate creates ...

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This overlaps an existing question: Can money multiplier happen within a single bank? The mechanics is described in there, and I think it addresses some of your questions. My guess as to what is happening in the explanation you found is that there is an added behavioural assumption: banks only make loans up to the size of their excess reserve position. This ...

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I think that you are unnecessarily overthinking it. For any relationship of the form: $$\ln y = \beta \ln x$$ the interpretation of beta coefficient is that $1\%$ increase in $x$ leads to $\beta$ $\%$ increase in $y$. The mathematical reason why this relationship holds was already explored at cross-validated stack exchange and you can see it here, or on ...

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There is good summary (with references) of the benefits of CBDCs on Wikipedia. With respect to banking sector disruption see this 2018 report by the Sveriges Riksbank. It finds that while a given outflow of retail deposits into e-krona reduces banks’ liquidity portfolios and worsens their funding profiles, banks can normally control this outflow via deposit ...

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Your question contains several incorrect premises, hence before providing an answer I will first correct those misconceptions as any discussion based on incorrect premises cannot be very productive. Correction of Misconceptions Ten years ago, negative interest rates were an impossibility, an intellectual curiosity. This is not true at all. Clearly ...

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Answer to Q1: Wouldn't the effect on deflation be the same if they fixed the price of gold at 35$in the beginning? Yes it should. The value of currency under gold standard is given by the price of gold so if one ounce of gold is set to be worth$\\\$100$ then $\\\$1$will be worth$1/100$ounce of gold. If government would set the price for gold to$\\\\$...

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You might be inspired by Joshua Angrist (MIT) who talks in this podcast about the craft of econometrics--how to use economic thinking and statistical methods to make sense of data and uncover causation. Using natural experiments is a good way to establish causation. A natural experiment is an empirical setting in which individuals are exposed to the ...

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I’d start by briefly noting that “the Fed” didn’t say anything; that’s a research paper (by some smart people), but it’s disclaimed and doesn’t necessarily reflect the views of anyone other than the authors. Having said that, I would then rephrase your question as follows: “what happens if everyone decides to cash in their retirement funds at once?” The ...

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If these T-bills mature and are repaid then you are correct money supply will decrease. In fact that might be desirable. Just because central bank wants to increase money supply in one year that does not mean they will not want to decrease it at some further period. When the T-bill matures central bank also have option to then buy new T-bill to replace the ...

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The main argument for joining (and then remaining) in the Euro for Greece was to limit inflation. Before Greece joined the Euro, the inflation was almost always in double digits, often exceeding 20% or event 30%. The reason for this was that the Government was running a huge budget deficit, which caused an over-supply of Drachmas. The expectation of ...

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When the Fed buys a bond as part of a Quantitative easing program, they execute with Primary Dealers through a website interface. Hedge funds do not execute directly with the Fed, although they could execute with a Primary dealer who executes with the Fed. When the Fed executes with a primary dealer, it credits the account of the primary dealer using newly ...

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Roughly speaking, say the central bank wishes to purchase £10 billion worth of bonds from non bank NB. NB will have an account with a bank B. The central bank cannot transfer reserves directly to NB so instead they give the reserves to B and instruct B to create £10 billion of demand deposits in NB's account. As you can see, and contrary to the belief of ...

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Could the Feds objectives be adjusted to decrease or at least not increase wealth inequality? Trivially, answer is yes. Congress could just give Fed a mandate for lowering inequality, the same way as congress could pass a law giving Fed mandate to bring world peace or solve world hunger or conduct space exploration. US is sovereign state and Fed is ...

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Well first if actually the cryptocurrency we are talking about would be created by central bank, then the rules that were used to create it would be by definition monetary policy even if supply of money would be fixed, since monetary policy is central bank’s control of money supply either directly or via interest rate (see Yeyati, Sturzenegger (2010), or ...

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In the 70s U.S. Fed policy was in disarray and Fed was not following consistent monetary policy (at least not by present day standards). Generally monetary scholars characterize the Fed monetary policy in the 70s as "go-stop" policy. As argued by Goodfriend (2007): At the heart of the disarray in monetary policy practice in the 1970s was the ...

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MMT is propounding to be a theory. A theory can't be sustainable or unsustainable. However, I think you meant to ask if the policy proposals of MMT-ers would be sustainable so I will answer assuming that is your question. Now MMT is not a proper scientific economic theory* as it is not rigorously defined (Mankiw 2020), so it is not actually clear what MMT ...

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Federal Reserve Financial Accounts Guide - All Tables https://www.federalreserve.gov/apps/fof/FOFTables.aspx These are also known as the Flow of Funds statistics kept by the Federal Reserve. The Fed assets and liabilities currently appear in Table L.109 Monetary Authority. The bank sector assets and liabilities currently appear in Table L.110 Private ...

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The Sidrauski model is equivalent to a model with 2 consumption goods where the second good (money) is produced costlessly by the government. Inflation is equivalent to raising the price of the second good. Money is super-neutral if this does not affect the real allocation (demand for the first good). This only happens when preferences are separable.

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The two series are linked by an accounting identity, which is why they tend to move together closely. There’s no theoretical limit to how much larger assets can be than the monetary base, though. If you look at the two tables in the H.4.1 Release, you’ll see that the first table is basically the Fed’s assets (what you refer to as its “balance sheet,” but in ...

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(1) Is it possible to have a gold standard without a fixed price of gold? No, with some provisions. First, I presume here we are talking about the price of gold in terms of currency not its relative price (relative to other goods and services) which was always allowed to fluctuate. Gold standard by its definition requires that money is fixed to gold at some ...

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I think this is due to how terminology surrounding ZLB changed/evolved over time. In most models ZLB is actually mathematically zero lower bound in a way that is closer to a boundary solution as you put it (see examples in Romer Advanced Macroeconomics chapter 11 and more importantly sources cited therein for the models including ZLB). Nonetheless, the ZLB ...

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