This document discusses various types of short-term financing. It defines short-term financing as financing for one year or less, including short-term loans from banks, trade credit from suppliers, and commercial paper. The document outlines the advantages of short-term financing over long-term options and describes how firms can use accounts receivable and inventory as collateral for short-term loans. Various short-term financing sources and their costs are defined, including calculations for determining effective interest rates.
Monetary policy aims to control money supply, interest rates, and achieve economic growth. The objectives of monetary policy are economic growth, full employment, price stability, neutrality of money, and exchange rate stability. Monetary policy tools include expansionary policy which increases money supply and lowers interest rates, and contractionary policy which decreases money supply and raises interest rates. Instruments of monetary policy include quantitative measures like open market operations and changes in reserve requirements, and qualitative measures like moral suasion and publicity.
The document discusses various aspects of monetary policy and international monetary systems. It provides details on tools of monetary policy like bank rate policy, open market operations, and changing cash reserve ratios. It also discusses different stages of the international monetary system, including the classical gold standard between 1816-1914 where currencies were pegged to the British pound and gold.
The document discusses India's monetary policy and operations. It provides an overview of the major tools and objectives of monetary policy in India, including open market operations, cash reserve ratio, statutory liquidity ratio, bank rate policy, credit ceilings, moral suasion, marginal standing facility, repo rate, and reverse repo rate. It also summarizes the Urjit R. Patel Committee report and its recommendations to target consumer price index for inflation. The conclusion emphasizes that monetary policy must be coordinated with fiscal policy for maximum economic stability and growth.
Monetary policy involves a monetary authority such as a central bank controlling the supply of money and interest rates to promote economic stability. The goals are typically stable prices and low unemployment. There are several types of monetary policy approaches including inflation targeting, price level targeting, monetary aggregates, fixed exchange rates, and gold standards. Central banks use tools like open market operations, interest rate adjustments, and reserve requirements to implement monetary policy and influence factors like money supply, interbank interest rates, banking system risk, and the monetary base.
This document provides an overview of inflation presented by Praveen Suresh. It defines inflation as a rise in the general price level and discusses its causes such as increases in demand or decreases in supply. The effects of inflation like rising costs of living are explained. Different types of inflation like demand-pull and cost-push are covered. Examples of major historical inflations and the high rates seen in countries like Zimbabwe and Germany are given. Methods to control inflation including monetary and fiscal measures are outlined. The document also discusses how inflation is calculated in India using the Wholesale Price Index and current inflation rates and food price rises in the country. It raises issues with solely relying on WPI for measuring consumer inflation.
Monetary policy involves central banks using interest rates and money supply to influence economic activity and inflation. The Bank of England pursues monetary policy to meet a 2% inflation target. It uses tools like interest rates, quantitative easing, and forward guidance. Low rates since 2009 have aimed to boost growth but can hurt savers and cause housing booms. The effectiveness of monetary policy faces challenges like debt levels and confidence. There are debates around the costs and benefits of current low rates in the UK.
Chapter 05_How Do Risk and Term Structure Affect Interest Rate?
The document discusses two factors that affect interest rates: risk structure and term structure. For risk structure, it explains how default risk, liquidity, and taxes can cause different interest rates for bonds with different levels of risk. For term structure, it presents the expectations theory, which states that interest rates of different maturities should equal the average expected future short-term rates. It also discusses empirical findings about the typical upward slope of the yield curve.
Central banks are institutions that manage a state's currency, money supply, and interest rates. They have a monopoly on increasing the money supply and often print the national currency. The primary functions of central banks are to manage the money supply, act as a lender of last resort during financial crises, promote monetary and financial stability, and oversee the banking system. Central banks also maintain commercial bank reserves and implement monetary policy through tools like open market operations and adjusting interest rates. Several major central banks discussed in the document are the Federal Reserve System, Bank of England, Bank of Japan, and State Bank of Pakistan, each with their own objectives and functions for monetary policy and financial stability.
This document summarizes monetary policy tools used by the Federal Reserve to influence economic activity. It discusses three main tools: reserve requirements, the discount rate, and open market operations. Changing these tools can implement either an expansionary/easy money policy to increase spending and reduce unemployment, or a restrictive/tight money policy to reduce spending and inflation. The document also discusses how fiscal deficits can impact monetary policy through crowding out and monetizing the debt.
This document provides information about the functions and roles of a central bank. It discusses how the first central bank, the Bank of England, was established in 1694. A central bank is responsible for a country's financial and economic stability by regulating other banks and formulating monetary policies. It acts as both the government's bank, by managing public debt and foreign exchange, and as the banker's bank by providing services to commercial banks. The document also outlines different methods that central banks use to issue currency, such as minimum reserve, fixed fiduciary, and proportional reserve systems.
Bond Valuation, Bond Types, Bond Characteristics, Reasons for issuing Bonds, Bond Risks, Bond Measuring Yield, Bond Pricing Theorems, Factors that Influence Bond Prices, Primary Bond Market, Secondary Bond Market, Bonds in Nepal.
Module - 1 :
The foreign exchange market, structure and organization- mechanics of currency trading
– types of transactions and settlement dates – exchange rate quotations and arbitrage – arbitrage with and without transaction costs – swaps and deposit markets – option forwards – forward swaps and swap positions – Interest rate parity theory.
This document discusses the Euro currency and its issues. It provides background on the creation of the European Economic Community and goals of establishing an economic and monetary union with a single currency. The Euro involves a single currency, common monetary policy set by the European Central Bank, and in theory limits on government borrowing. However, some member countries have violated borrowing limits. The Euro creates challenges as it is not an optimal currency area, limits fiscal policy flexibility, and removes the ability to use devaluation to boost competitiveness. Foreign currency convertible bonds are also discussed as a type of Euro issue that allows companies to raise funds outside their home country.
Monetary policy aims to control money supply and interest rates to achieve objectives like price stability and economic growth. In India, the Reserve Bank of India implements monetary policy through tools like open market operations, cash reserve ratio, statutory liquidity ratio, and bank rate policy. The objectives of monetary policy include price stability, controlled expansion of bank credit, and promotion of exports. However, monetary policy faces limitations like time lags, difficulties in forecasting, and the growth of non-banking financial institutions.
This presentation discusses about the following subtopics:
What is a government deficit?
Types of deficit
What is a revenue deficit?
What is a fiscal deficit?
What is a primary deficit?
Difference between Fiscal Deficit and Revenue Deficit
Difference between Primary Deficit and Revenue Deficit
KEY TAKE AWAY:
What is Monetary policy?
Objectives of Monetary policy?
Types of Monetary policy?
Tools of Monetary policy?
Significance of Monetary policy?
Quantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the economy by increasing the money supply. It involves flooding financial institutions with capital to promote increased lending and liquidity. The funds are created electronically rather than physically printed. Several central banks, including the Bank of Japan, US Federal Reserve, Bank of England, and European Central Bank engaged in QE programs following the 2008 financial crisis to boost their economies by lowering interest rates and purchasing assets like government bonds. While QE can help stimulate demand, there are also risks like potential impact on savings, pensions, inequality and emerging market economies.
1) Governments use monetary and fiscal policy tools to try to influence aggregate demand in the economy and prevent recessions.
2) Through monetary policy, central banks can use interest rates, bonds, and bank reserves to expand or contract the money supply and stimulate or slow economic growth. Through fiscal policy, governments can cut taxes or increase spending to expand the economy, or raise taxes or decrease spending to contract the economy.
3) The goal of these policies is to maintain stable economic growth of around 2% without causing too much inflation by either increasing or decreasing overall demand in the country.
Monetary Policy Effectiveness of monetary policy to combat inflation: India e...MD SALMAN ANJUM
This document discusses the effectiveness of monetary policy tools used by the Reserve Bank of India to combat inflation. It outlines several tools available to the RBI including increasing the cash reserve ratio and statutory liquidity ratio, conducting open market operations by selling government securities, and increasing policy rates like the repo rate and bank rate. These actions help reduce the money supply in the economy and thereby lower aggregate demand, reducing inflationary pressures. Causes of inflation discussed include excess aggregate demand and cost-push supply factors. Sectors of the Indian economy and poverty levels over time are also briefly mentioned.
This document discusses various types of short-term financing. It defines short-term financing as financing for one year or less, including short-term loans from banks, trade credit from suppliers, and commercial paper. The document outlines the advantages of short-term financing over long-term options and describes how firms can use accounts receivable and inventory as collateral for short-term loans. Various short-term financing sources and their costs are defined, including calculations for determining effective interest rates.
Monetary policy aims to control money supply, interest rates, and achieve economic growth. The objectives of monetary policy are economic growth, full employment, price stability, neutrality of money, and exchange rate stability. Monetary policy tools include expansionary policy which increases money supply and lowers interest rates, and contractionary policy which decreases money supply and raises interest rates. Instruments of monetary policy include quantitative measures like open market operations and changes in reserve requirements, and qualitative measures like moral suasion and publicity.
The document discusses various aspects of monetary policy and international monetary systems. It provides details on tools of monetary policy like bank rate policy, open market operations, and changing cash reserve ratios. It also discusses different stages of the international monetary system, including the classical gold standard between 1816-1914 where currencies were pegged to the British pound and gold.
The document discusses India's monetary policy and operations. It provides an overview of the major tools and objectives of monetary policy in India, including open market operations, cash reserve ratio, statutory liquidity ratio, bank rate policy, credit ceilings, moral suasion, marginal standing facility, repo rate, and reverse repo rate. It also summarizes the Urjit R. Patel Committee report and its recommendations to target consumer price index for inflation. The conclusion emphasizes that monetary policy must be coordinated with fiscal policy for maximum economic stability and growth.
Monetary policy/ Credit Control of pakistanJawad Ahmed
Monetary policy involves a monetary authority such as a central bank controlling the supply of money and interest rates to promote economic stability. The goals are typically stable prices and low unemployment. There are several types of monetary policy approaches including inflation targeting, price level targeting, monetary aggregates, fixed exchange rates, and gold standards. Central banks use tools like open market operations, interest rate adjustments, and reserve requirements to implement monetary policy and influence factors like money supply, interbank interest rates, banking system risk, and the monetary base.
This document provides an overview of inflation presented by Praveen Suresh. It defines inflation as a rise in the general price level and discusses its causes such as increases in demand or decreases in supply. The effects of inflation like rising costs of living are explained. Different types of inflation like demand-pull and cost-push are covered. Examples of major historical inflations and the high rates seen in countries like Zimbabwe and Germany are given. Methods to control inflation including monetary and fiscal measures are outlined. The document also discusses how inflation is calculated in India using the Wholesale Price Index and current inflation rates and food price rises in the country. It raises issues with solely relying on WPI for measuring consumer inflation.
Monetary policy involves central banks using interest rates and money supply to influence economic activity and inflation. The Bank of England pursues monetary policy to meet a 2% inflation target. It uses tools like interest rates, quantitative easing, and forward guidance. Low rates since 2009 have aimed to boost growth but can hurt savers and cause housing booms. The effectiveness of monetary policy faces challenges like debt levels and confidence. There are debates around the costs and benefits of current low rates in the UK.
Chapter 05_How Do Risk and Term Structure Affect Interest Rate?Rusman Mukhlis
The document discusses two factors that affect interest rates: risk structure and term structure. For risk structure, it explains how default risk, liquidity, and taxes can cause different interest rates for bonds with different levels of risk. For term structure, it presents the expectations theory, which states that interest rates of different maturities should equal the average expected future short-term rates. It also discusses empirical findings about the typical upward slope of the yield curve.
Central banks are institutions that manage a state's currency, money supply, and interest rates. They have a monopoly on increasing the money supply and often print the national currency. The primary functions of central banks are to manage the money supply, act as a lender of last resort during financial crises, promote monetary and financial stability, and oversee the banking system. Central banks also maintain commercial bank reserves and implement monetary policy through tools like open market operations and adjusting interest rates. Several major central banks discussed in the document are the Federal Reserve System, Bank of England, Bank of Japan, and State Bank of Pakistan, each with their own objectives and functions for monetary policy and financial stability.
This document summarizes monetary policy tools used by the Federal Reserve to influence economic activity. It discusses three main tools: reserve requirements, the discount rate, and open market operations. Changing these tools can implement either an expansionary/easy money policy to increase spending and reduce unemployment, or a restrictive/tight money policy to reduce spending and inflation. The document also discusses how fiscal deficits can impact monetary policy through crowding out and monetizing the debt.
This document provides information about the functions and roles of a central bank. It discusses how the first central bank, the Bank of England, was established in 1694. A central bank is responsible for a country's financial and economic stability by regulating other banks and formulating monetary policies. It acts as both the government's bank, by managing public debt and foreign exchange, and as the banker's bank by providing services to commercial banks. The document also outlines different methods that central banks use to issue currency, such as minimum reserve, fixed fiduciary, and proportional reserve systems.
Bond Valuation, Bond Types, Bond Characteristics, Reasons for issuing Bonds, Bond Risks, Bond Measuring Yield, Bond Pricing Theorems, Factors that Influence Bond Prices, Primary Bond Market, Secondary Bond Market, Bonds in Nepal.
Module - 1 :
The foreign exchange market, structure and organization- mechanics of currency trading
– types of transactions and settlement dates – exchange rate quotations and arbitrage – arbitrage with and without transaction costs – swaps and deposit markets – option forwards – forward swaps and swap positions – Interest rate parity theory.
This document discusses the Euro currency and its issues. It provides background on the creation of the European Economic Community and goals of establishing an economic and monetary union with a single currency. The Euro involves a single currency, common monetary policy set by the European Central Bank, and in theory limits on government borrowing. However, some member countries have violated borrowing limits. The Euro creates challenges as it is not an optimal currency area, limits fiscal policy flexibility, and removes the ability to use devaluation to boost competitiveness. Foreign currency convertible bonds are also discussed as a type of Euro issue that allows companies to raise funds outside their home country.
Monetary policy aims to control money supply and interest rates to achieve objectives like price stability and economic growth. In India, the Reserve Bank of India implements monetary policy through tools like open market operations, cash reserve ratio, statutory liquidity ratio, and bank rate policy. The objectives of monetary policy include price stability, controlled expansion of bank credit, and promotion of exports. However, monetary policy faces limitations like time lags, difficulties in forecasting, and the growth of non-banking financial institutions.
This presentation discusses about the following subtopics:
What is a government deficit?
Types of deficit
What is a revenue deficit?
What is a fiscal deficit?
What is a primary deficit?
Difference between Fiscal Deficit and Revenue Deficit
Difference between Primary Deficit and Revenue Deficit
KEY TAKE AWAY:
What is Monetary policy?
Objectives of Monetary policy?
Types of Monetary policy?
Tools of Monetary policy?
Significance of Monetary policy?
Quantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the economy by increasing the money supply. It involves flooding financial institutions with capital to promote increased lending and liquidity. The funds are created electronically rather than physically printed. Several central banks, including the Bank of Japan, US Federal Reserve, Bank of England, and European Central Bank engaged in QE programs following the 2008 financial crisis to boost their economies by lowering interest rates and purchasing assets like government bonds. While QE can help stimulate demand, there are also risks like potential impact on savings, pensions, inequality and emerging market economies.
Quantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the economy. It works by having the central bank purchase financial assets to inject money into the economy. The document then discusses (1) how QE creates money, (2) the economic effects of QE including lower interest rates and higher stock prices, and (3) the risks of QE such as wealth inequality and rising future interest rates. Examples of QE programs in Japan, the US, and Europe are provided. While QE has had some positive effects, its overall effectiveness depends on various economic conditions and factors. Central banks now face challenges in exiting from QE programs as bond holdings are unwound.
- The document discusses the potential economic impact of President-elect Donald Trump's proposed fiscal plans, including tax cuts and increased spending.
- It finds that tax cuts would provide a larger short-term boost to growth than increased spending, but that spending measures have higher fiscal multipliers. Tax cuts are also more likely to push up Treasury yields and pose risks for bond investors.
- The size and permanence of the tax cuts will determine their impact, with temporary cuts having lower multipliers than permanent ones. Spending is generally more efficient at boosting growth.
- Trump's tax cut proposals are larger than Republican plans but may be less effective at boosting growth due to focusing more on high-income
A summary of Quantitative easing policy, its first implementation in Japan, then America after the crisis of 2008 and Europe after the Greece sovereign debt crisis.
The document outlines the structure and policies of the United States Central Bank, known as the Federal Reserve System. The Federal Reserve System has a board of governors led by Janet Yellen as Chair. It is made up of 12 Federal Reserve Districts. Key committees in the system include the Federal Open Market Committee, charged with open market operations, and the Federal Advisory Council which offers advice. The system also includes non-bank public entities that use commercial banking. It implements monetary policies through tools like interest rates, lending facilities, and open market operations to influence employment, inflation and growth.
An Overview Of US Monetary Policy: The Implications of Quantatitive Easing (N...danielbooth
The Federal Reserve has begun paying interest on bank reserves to allow it to increase reserves through quantitative easing without affecting interest rates. This "divorces" the money supply from monetary policy, allowing the Fed to target interest rates independently of the reserve supply. By paying interest on reserves, the Fed can increase reserves without driving rates below its target. This approach maintains its target rate while providing banks with extra liquidity to ease market stress.
- Monetary financing or "helicopter money" involves central banks directly increasing money supply by crediting funds to government or individual accounts, bypassing traditional monetary policy tools. It is seen as a potential next step for central banks struggling with low growth and inflation.
- The document provides a checklist for considering helicopter money, examining factors like economic conditions, central bank credibility and independence, balance sheet constraints, and risks of losing control over inflation.
- While helicopter money could boost nominal growth and inflation, current economic data does not warrant it for major economies. More importantly, the approach risks undermining central bank credibility and ability to manage inflation expectations.
Quantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the economy through increasing the money supply when standard policies are ineffective. It works by having the central bank buy financial assets like treasury bonds from banks, increasing their prices and lowering interest rates. This aims to encourage borrowing and spending by businesses and households. The document outlines the history of QE programs in the US since 2008 and discusses whether they achieved their goals as well as the potential benefits like economic growth and risks like higher inflation.
The village of Sukhsagar fell into an economic downturn after a respected pundit predicted job losses. Villagers began hoarding money instead of spending, causing demand and economic activity to nosedive. A government official announced a policy of quantitative easing by making unlimited, low-interest money available to revive spending. As villagers started buying goods again, producers returned and the economy regained momentum. Quantitative easing works by increasing the money supply to boost confidence and circulation in the economy.
Quantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the economy by increasing the money supply. The central bank creates money to buy government bonds and other assets from banks. This increases bank reserves and is intended to boost lending. However, QE can negatively impact emerging markets through currency depreciation and higher commodity prices. It may also increase inflation and international debt burdens. While QE stimulates the domestic economy, it has mixed effects globally.
Bank management-general-principles-primary-concerns-of-the4512Ganesh Shinde
The document discusses the primary concerns and responsibilities of bank managers. It states that bank managers must ensure deposit inflows match outflows through liquidity management. They must also keep risk levels low through asset management and maintain adequate capital levels as required by regulators. The document then goes into further detail about how bank managers engage in liquidity management, asset management, liability management, and capital adequacy management to address these primary concerns. It discusses various methods and indicators used to evaluate liquidity needs and risks. Maintaining sufficient reserves and capital is important to prevent bank failure during unexpected events.
The Federal Reserve System is the central bank of the United States. It was established in 1913 with the enactment of the Federal Reserve Act in response to a series of financial panics. The Federal Reserve System has a three-part structure - the Board of Governors, the Federal Open Market Committee, and the 12 Federal Reserve Banks. It uses various monetary policy tools like open market operations, the discount rate, and reserve requirements to regulate the supply of money and achieve its mandates of maximum employment, stable prices, and moderate long-term interest rates. Despite its efforts, the Federal Reserve faces ongoing scrutiny over its ability to stimulate economic recovery in the aftermath of the late 2000s recession.
The document discusses Open Market Operations (OMOs), which is a monetary policy tool used by central banks like the Reserve Bank of India (RBI) to regulate money supply. Through OMOs, the RBI buys and sells government securities to infuse or suck out liquidity from the market. This affects interest rates and government borrowing costs. When the RBI buys bonds, it injects liquidity, lowering interest rates and allowing easier borrowing for corporations and the government. Selling bonds has the opposite effect of tightening liquidity and raising rates. OMOs thus help control inflation while enabling stable economic growth.
The document provides an overview of the history and functions of the Federal Reserve System. It summarizes that the Federal Reserve was established in 1913 to address financial panics by providing an elastic currency and a lender of last resort. It took over clearinghouse roles from private banks. Today, the Federal Reserve has five key roles: acting as a bankers' bank, lender of last resort, financial supervisor and regulator, currency issuer, and conductor of monetary policy. It oversees various types of financial institutions and enforces numerous regulations.
This slide presents the open market operations conducted by central bank of India like what is OMO, who are the players in OMO, why OMO, How OMO, When OMO, Where OMO.
Airport Operation Market In Opportunity NitinNitin Rajan
The Indian airport operation market presents opportunities for private investment and growth. Factors fueling growth include rising domestic and international passenger traffic, expansion of medical tourism, and growth of low-cost airlines. The government is encouraging private investment in airlines and infrastructure through policies allowing 100% FDI and tax exemptions. While funding and land availability pose challenges, growth potential exists in expanding airports across smaller Indian cities to support projected passenger traffic of 280 million by 2020. Private operators are playing an increasing role in developing and managing airports through public-private partnerships.
Reserve Bank Of India : Role ,Functions Structure and ManagementBinto Mathachan
The Reserve Bank of India (RBI) is India's central bank that was established in 1935. It functions as the bank of banks and monetary authority in India. The RBI manages the country's money supply and foreign exchange, acts as a bank for the central and state governments, and regulates and supervises financial institutions. It is headquartered in Mumbai and governed by a central board of directors appointed by the Government of India.
The documents discuss the history of banking in India. They describe how the three Presidency Banks were established in the 19th century and later amalgamated to form the Imperial Bank of India in 1921. The Imperial Bank performed some central banking functions until the Reserve Bank of India was established in 1935. The RBI took over as the central bank and continues to regulate monetary policy and the banking system in India.
This document summarizes a report from the Cologne Institute for Economic Research on monetary policy outlooks for the ECB and Fed in December 2015. It finds that:
1) Credit growth is weak in the Eurozone, hindering the ECB from reaching its inflation target, due to impaired bank lending channels. In contrast, money and credit growth are both increasing in the US.
2) The ECB is expected to further intensify its accommodative monetary policy by cutting rates into negative territory and expanding its asset purchase program, while the Fed will likely begin gradually raising rates.
3) Weak credit growth in the Eurozone is partly due to low investment demand but also restrictive bank lending policies as banks reduce
The very expansive and unconventional monetary policy of the ECB reduced the tensions of the Euro debt crisis at the price of persistently very low interest rates.
While the ECB was right to act at the peak of the crisis, the risks of the low-interest rate environment become increasingly obvious. Private savings suffer from very low
yields, which is particularly detrimental for long-term retirement savings. Moreover, financial stability risks could arise, as ultra-low interest rates can cause a search for
yield among investors. Banks and life insurance companies are exposed to reduced interest profits respectively lower yields. While life insurance companies can cope with a shorter period of low interest rates, a longer period, however, poses challenges, as contracts with guaranteed interest rates have to be served.
The low interest rate environment – Causes, effects and a way outI W
The document discusses the causes and effects of the long period of low interest rates in Europe following the global financial crisis and Euro debt crisis. It notes that while the ECB's expansive monetary policy helped reduce tensions, the low rate environment poses increasing risks. Savers are disadvantaged by low yields, while debtors benefit. There are also financial stability risks as investors search for higher yields. The document argues that economic conditions have improved, making an interest rate turnaround possible in mid-2015, but the ECB should implement any rate increases gradually to allow markets to adapt.
Draghinomics Introduces Quantitative Easing to the Eurozone QNB Group
The European Central Bank announced its first quantitative easing program to stimulate the stagnant eurozone economy. It will purchase private sector assets starting in October 2014 to expand its balance sheet by €1 trillion, following other central banks. This is expected to depreciate the euro relative to the dollar due to the larger growth in the ECB's balance sheet compared to the slowing Federal Reserve program. The quantitative easing may help the eurozone avoid deflation and recover economic activity.
The document summarizes the Federal Reserve's use of quantitative easing (QE) to stimulate the US economy following the Great Recession. It describes the four QE programs undertaken by the Fed between 2008-2014 to increase the money supply and lower interest rates. While QE helped lead to recovery in the short-run through higher GDP and lowered unemployment, the document speculates the economy remains vulnerable in the long-run without further QE due to its dependence on low interest rates and money supply growth to sustain expansion.
The document summarizes a presentation about the three main monetary policy tools used by central banks: open market operations, reserve requirements, and discount window lending. It focuses on how the Federal Reserve Bank of New York uses open market operations to influence monetary base and interest rates by buying and selling government securities. Reserve requirements determine the minimum reserves banks must hold, and changing them impacts bank lending. Discount window lending provides banks reserves to meet demands or requirements, with interest rates like the discount rate influencing economic activity.
Quantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the economy by increasing the money supply when standard policies are ineffective. It involves central banks buying assets like government bonds or other securities to inject money directly into the financial system. While QE aims to increase lending, spending, and job growth, it also poses risks like potentially fueling inflation and discouraging exports. As a result, QE is usually only used as a last resort to support the economy during severe downturns.
Central banks around the world deployed unconventional monetary policy tools in response to the economic crisis caused by the COVID-19 pandemic. These tools included asset purchase programs, term lending facilities, and forward guidance. The European Central Bank launched new asset purchase programs and term operations to provide liquidity to stressed sectors. Other central banks like the Bank of England and Reserve Bank of India also implemented large bond purchase programs and term lending facilities. Central banks used these unconventional policies to lower borrowing costs and support financial stability during the pandemic.
This document provides an overview of monetary policy tools and goals. It discusses how monetary policy works to control money supply, availability, and interest rates to achieve economic growth and stability. The Federal Reserve's balance sheet is used as an example, with its assets including government securities and discount loans, and its liabilities including currency in circulation and bank reserves. Open market operations, where the central bank buys and sells government bonds, are described as the most important monetary policy tool for determining changes in bank reserves and interest rates.
Chapter 08_Conduct of Monetary Policy: Tools, Goals, Strategy, and TacticsRusman Mukhlis
This document provides an overview of monetary policy tools and goals. It discusses how central banks like the Federal Reserve and European Central Bank implement monetary policy through tools like open market operations, discount rates, and reserve requirements. It also examines the goals of price stability and inflation targeting, and debates whether price stability or dual mandates are preferable. Tactics for choosing policy instruments on a daily basis and evaluating the pros and cons of monetary targeting and inflation targeting are also summarized.
Understanding Risk Management and Compliance, May 2012Compliance LLC
The document discusses several topics related to banking regulation:
1) It discusses the EBA's work over the past year to strengthen bank capital positions in response to the financial crisis, including stress tests and recommendations to raise over €115 billion in capital.
2) It outlines the EBA's goal of establishing a Single Rulebook to harmonize banking rules across the EU and prevent a relaxation of standards.
3) It focuses on the EBA's work developing regulatory technical standards for defining bank capital and ensuring high quality capital instruments are used across all member states.
This document provides an overview of finance theory from both legal and financial perspectives. It discusses how lawyers view financial instruments as combinations of ownership rights and debt obligations, while finance professionals focus on the discounted cash flows. The document outlines how discount rates are used to determine the present value of future cash flows, with riskier propositions requiring higher discount rates. It also discusses factors like interest rates, risk premiums, and efficient markets theory that influence valuations.
The document provides an overview of monetary systems, including the meaning of money, the Federal Reserve system, and how banks impact the money supply. It begins by defining money and describing its key functions. It then explains that the Federal Reserve is the central bank of the US and oversees monetary policy through tools like open market operations and reserve requirements. Banks expand the money supply through fractional reserve banking and the money multiplier effect. The document also notes challenges in controlling the money supply due to the independent actions of depositors and bankers.
This document provides a general overview of non-performing loans (NPLs) on a global scale. It discusses that NPLs increased significantly following the 2008 financial crisis for banks in the US, Europe, and Asia. In Europe specifically, the level of NPLs across major banks was 6% of total loans outstanding or 10% excluding other financial institutions, compared to 3% for major US banks. Most Asian banking systems saw NPL ratios fall below 5% after the crisis. The document aims to educate about causes and effects of NPLs as well as mechanisms for banks to manage high NPLs.
The document discusses the effects of the Federal Reserve's quantitative easing programs (QE1, QE2, QE3) on the US economy. QE1 helped stop the recession but did not stimulate much growth as banks held excess reserves. QE2 and QE3 aimed to increase inflation and lower bond yields. While economic growth increased, the programs' long-term effects are still uncertain and inflation remains below targets. The author believes QE will further boost the economy but its sustained success is not yet clear.
Growth Forecast Errors and Fiscal Multipliers Marco Garoffolo
- Forecasters underestimated fiscal multipliers in advanced economies early in the crisis. A 1 percentage point increase in planned fiscal consolidation was associated with about 1 percentage point lower growth than forecasted.
- This relationship was stronger early in the crisis but weaker in more recent years, possibly due to learning by forecasters and smaller actual multipliers over time.
- The results suggest multipliers were underestimated for both spending cuts and tax increases, with slightly larger underestimation for spending cuts. Unemployment and private consumption/investment forecasts also underestimated the negative impact of fiscal consolidation.
- Forecasters underestimated fiscal multipliers in advanced economies early in the crisis. A 1 percentage point increase in planned fiscal consolidation was associated with about 1 percentage point lower growth than forecasted.
- This relationship was stronger early in the crisis but weaker in more recent years, possibly due to learning by forecasters and smaller actual multipliers over time.
- The results suggest multipliers were underestimated for both spending cuts and tax increases, with slightly larger underestimation for spending cuts. Unemployment and private consumption/investment forecasts also underestimated the negative impact of fiscal consolidation.
February 2012 "State of the Debt Capital Markets"Brian Schofield
The document summarizes recent economic trends in the United States. It notes that while uncertainties remain regarding fiscal policy and the European debt crisis, the Federal Reserve has provided stability by communicating its plans to keep interest rates low until 2014. The U.S. economy showed signs of strength in 2011, with improving consumer spending and sentiment as well as job growth. Barring major setbacks, the outlook for continued growth in the U.S. economy remains positive in 2012.
28 | Monetary Policy and
Bank Regulation
Figure 28.1 Marriner S. Eccles Federal Reserve Headquarters, Washington D.C. Some of the most influential
decisions regarding monetary policy in the United States are made behind these doors. (Credit: modification of work
by “squirrel83”/Flickr Creative Commons)
The Problem of the Zero Percent Interest Rate Lower Bound
Most economists believe that monetary policy (the manipulation of interest rates and credit conditions by
a nation’s central bank) has a powerful influence on a nation’s economy. Monetary policy works when the
central bank reduces interest rates and makes credit more available. As a result, business investment
and other types of spending increase, causing GDP and employment to grow.
But what if the interest rates banks pay are close to zero already? They cannot be made negative, can
they? That would mean that lenders pay borrowers for the privilege of taking their money. Yet, this was
the situation the U.S. Federal Reserve found itself in at the end of the 2008–2009 recession. The federal
funds rate, which is the interest rate for banks that the Federal Reserve targets with its monetary policy,
was slightly above 5% in 2007. By 2009, it had fallen to 0.16%.
The Federal Reserve’s situation was further complicated because fiscal policy, the other major tool for
managing the economy, was constrained by fears that the federal budget deficit and the public debt
were already too high. What were the Federal Reserve’s options? How could monetary policy be used
to stimulate the economy? The answer, as we will see in this chapter, was to change the rules of the
game.
CHAPTER 28 | MONETARY POLICY AND BANK REGULATION 569
Introduction to Monetary Policy and Bank Regulation
In this chapter, you will learn about:
• The Federal Reserve Banking System and Central Banks
• Bank Regulation
• How a Central Bank Executes Monetary Policy
• Monetary Policy and Economic Outcomes
• Pitfalls for Monetary Policy
Money, loans, and banks are all tied together. Money is deposited in bank accounts, which is then loaned to businesses,
individuals, and other banks. When the interlocking system of money, loans, and banks works well, economic transactions
are made smoothly in goods and labor markets and savers are connected with borrowers. If the money and banking system
does not operate smoothly, the economy can either fall into recession or suffer prolonged inflation.
The government of every country has public policies that support the system of money, loans, and banking. But these
policies do not always work perfectly. This chapter discusses how monetary policy works and what may prevent it from
working perfectly.
28.1 | The Federal Reserve Banking System and Central
Banks
By the end of this section, you will be able to:
• Explain the structure and organization of the U.S. Federal Reserve
• Discuss how central banks impact monetary policy, promote financial stability, and provide banking services
In ma.
But resolving this legacy issue with continued application of past interventionist instruments does not incentivize the much needed structural reforms and private capital market activities. Financial repression has induced a re-allocation of capital across markets and greatly enhanced the role of public markets at the detriment of private market activities. Artificially low – or in some cases even negative – interest rates break the credit intermediation channel which can crowd out viable private investors.
Similar to Quantitative Easing and the Fed 2008-2014: A Tutorial (20)
This document discusses the importance of reuploading revised versions of slideshows on Slideshare without changing the URL. It allows for short-term error corrections, long-term revisions to keep content up to date, and for classroom materials to link to the latest version. Although Slideshare removed the reupload feature, users can request its return by searching for "Reupload" on the support page and asking them to bring it back due to its value. The document encourages users to submit feedback to potentially have the feature restored if there is widespread demand.
The document discusses the concept of the Non-Accelerating Inflation Rate of Unemployment (Nairu). The Nairu represents the lowest level of unemployment an economy can sustain before wages and prices begin to rapidly increase. It captures both parts of the Federal Reserve's dual mandate to achieve maximum employment and price stability. However, estimating the precise Nairu is difficult because the relationship between unemployment and inflation has changed over time and the Phillips Curve is no longer stable. Nonetheless, the Federal Reserve monitors unemployment relative to estimates of the Nairu when making decisions around interest rates and monetary policy.
How Liberals and Conservatives Can Talk About Climate changeEd Dolan
Many liberals are afraid to talk to their conservative friends and neighbors about climate change. They think it is a waste of time and that all conservatives are climate deniers. Their conservative friends have similar feelings about liberals. Here is why liberals and conservatives should talk to each other about climate and how a constructive dialog is possible.
This document provides a tutorial on consumer and producer surplus. It explains that the demand curve represents how much consumers will buy at different prices or the maximum consumers will pay for each unit. Consumer surplus is the difference between what consumers actually pay and the maximum they would have paid, which is the area under the demand curve above the market price. The supply curve represents the minimum price producers will accept to supply each unit or their marginal costs. Producer surplus is the difference between the revenue earned and total costs, which is the area above the supply curve but below the market price. The combined consumer and producer surplus represents the total gains from trade.
1) The document discusses why economists fear deflation, noting that sustained deflation can interfere with the smooth operation of the economy.
2) Deflation becomes problematic when nominal interest rates hit 0%, as further deflation causes real interest rates to rise, discouraging borrowing and economic activity. Unexpected deflation can also cause losses for banks by reducing the value of loans and collateral.
3) Deflation limits the effectiveness of monetary policy tools like interest rate cuts once rates hit 0%, and alternative tools like quantitative easing have had mixed results in stimulating economies.
4) Deflation also creates challenges for labor markets, as workers resist nominal wage cuts even if they only match falling prices, which can lead to higher
US GDP Grows at 5 Percent in Q3 2014, Best of RecoveryEd Dolan
The US GDP grew at an annual rate of 5% in the third quarter of 2014, the fastest growth of the economic recovery. This is an upward revision from the previous estimate of 3.9% growth and follows 4.6% growth in the second quarter. Strong growth was seen in consumption, investment, and exports. By the third quarter, inflation and unemployment rates were close to the targets set by the Federal Reserve, indicating the economy was approaching full recovery.
The Economics of a Price-Smoothing Oil TaxEd Dolan
An oil importing country can protect itself from the adverse effects of price volatility and encourage energy conservation by implementing a tax that varies inversely with the global oil price, thereby smoothing the domestic price.
Government agencies reported US GDP growth at a 3.6 percent in Q3. The economy added 203,000 jobs in November and unemployment fell to 7 percent, a new low for the recovery
Banks may take excessive risks due to contagion effects, moral hazard, and agency problems. Contagion effects can cause bank failures to spread from one bank to others. Moral hazard arises from deposit insurance which can encourage banks to take greater risks. Agency problems occur when bank executives are incentivized to pursue high risk strategies that benefit themselves rather than shareholders and depositors. These issues suggest banks may require regulation to limit their risk-taking.
US Adds 204,000 Jobs in October Despite ShutdownEd Dolan
The US added 204,000 new jobs in October. The unemployment rate edged up by less than a tenth of a percent. The data were muddled by the government shutdown
US GDP Growth Revised Downward on Falling ExportsEd Dolan
The US Bureau of Economic Analysis revised US GDP growth in the first quarter of 2013 down to 1.8% from the previous estimate of 2.4%. This represents a slower rate of growth than the previous quarter. Exports declined for the second consecutive quarter as the global economy slowed, while government spending cuts continued to drag on overall growth, referred to as "fiscal drag". Consumption remained the largest contributor to growth.
Breakup of the Ruble Area: Lessons for the EuroEd Dolan
After the Soviet Union was dissolved, the 15 successor states for a time shared the ruble as their common currency. The breakup of the ruble area holds lessons for the euro.
Neither of excess is good for the society, it has to be balanced to achieve maximum social benefit. Dalton called this principle as "Maximum Social Advantage" and Pigou termed it as "Maximum Aggregate Welfare". It was introduced by Swedish Economist "Erik Lindahl in 1919". See my ppt for additional details.
INTRODUCTION TO FISCAL ECONOMICS OR PUBLIC FINANCEDr T AASIF AHMED
The study of public finance focuses on how the government affects the economy. This area of economics evaluates the public authorities' government spending and revenue and makes adjustments to either one in order to achieve desired results and prevent undesirable ones. Speak with Dr. T. Aasif Ahmed, an Economics faculty member, for further details.
Typical Scams to Stay Away from When Buying Verified Binance AccountsAny kyc Account
In the world of cryptocurrency, having a verified Binance account can provide numerous benefits. However, with the growing demand for these accounts, the risk of encountering scams also increases. This presentation aims to educate you on the most common scams to avoid when buying verified Binance accounts and provide tips for safe transactions.
The JD Euroway and Fritzgerald Zephir (Fritz) Financial Debacle.pptxsonalisaini008
In an astonishing series of events, Finance JD Euroway Inc. and its CEO Fritzgerald Zephir (Fritz) find themselves embroiled in a high-stakes legal battle, accused of orchestrating a fraudulent investment scheme.
What is an E-commerce- digital marketingpdfPurna Rai
What is an E-commerce?
E-commerce refers to the buying and selling of goods and services over the Internet. In an e-commerce transaction, the exchange of products or services takes place electronically, often through online platforms or websites. E-commerce has become a major aspect of the modern economy, enabling businesses and consumers to conduct transactions without the need for physical presence. It has gained immense popularity over recent years, with more people turning to online shopping for its convenience and accessibility.
E-commerce platforms provide a virtual marketplace where sellers can showcase their products, and buyers can browse and purchase items with just a few clicks. This has opened up new opportunities for entrepreneurs and businesses of all sizes, allowing them to reach a larger customer base and operate globally. However, e-commerce also presents its own set of challenges, such as competition, security concerns, and effectively managing logistics and customer experience. It is important for e-commerce businesses to stay up-to-date with evolving technologies, consumer trends, and effective marketing strategies to remain successful in this ever-growing industry.
What are the Key Components and Features of E-commerce?
E-commerce has various forms, including business-to-consumer (B2C), business-to-business (B2B), consumer-to-consumer (C2C), and more. The growth of e-commerce has transformed the way businesses operate and how consumers shop, providing convenience, accessibility, and a global marketplace. Key components and features of e-commerce include:
Online Stores: Businesses set up digital storefronts or online stores where customers can browse, select, and purchase products or services. These stores can take various forms, including dedicated websites, marketplaces, or social media platforms.
Electronic Payments: E-commerce transactions involve electronic payment methods. Customers can use credit cards, digital wallets, online banking, or other electronic payment systems for making payments.
Digital Marketing: E-commerce relies heavily on digital marketing strategies to attract customers. This includes search engine optimization (SEO), social media marketing, email marketing, and other online advertising methods.
Product Catalogs: Online stores have digital catalogs that showcase their products or services. These catalogs provide detailed information, images, and specifications to help customers make informed purchasing decisions.
Shopping Carts: E-commerce platforms typically incorporate shopping carts that allow customers to add products to their virtual cart, review their selections, and proceed to checkout for payment.
Secure Transactions: Security is a critical aspect of e-commerce. Secure socket layer (SSL) encryption is commonly used to ensure the confidentiality and integrity of sensitive information, such as payment details.
Quantitative Easing and the Fed 2008-2014: A Tutorial
1. Economics for your Classroom from
Ed Dolan’s Econ Blog
Quantitative Easing and the
Fed: 2008-2014
A Tutorial
Revised November 2014
Terms of Use: These slides are provided under Creative Commons License Attribution—Share Alike 3.0 . You are free
to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like
the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishing.
2. Understanding Quantitative Easing
Central banks—the Federal
Reserve, the European Central
Bank, the People’s Bank of China,
and others—are among the most
powerful institutions in the world
One of their potentially most
powerful but least understood
instruments is Quantitative Easing
or QE, a type of policy that the Fed
pursued for six years, from late 2008
to late 2014
This tutorial explains the mechanics
of QE and its effects on the US
economy
Federal Reserve Building,
Washington, DC
Photo by Agnosticpreacherskid,
http://upload.wikimedia.org/wikipedia/commons/8/8d/Marriner_S._Eccle
s_Federal_Reserve_Board_Building.jpg
Revised version November 2014 Ed Dolan’s Econ Blog
4. The Central Bank Balance Sheet: Assets
Fig 1 gives a stylized balance sheet
of a typical central bank
Net domestic assets consist of all
assets denominated in the country’s
own currency, e.g., bonds issued by
its government, adjusted by
subtracting certain liabilities and
capital
Net foreign assets consist of all
assets denominated in foreign
currencies, e.g., bonds issued by
foreign governments, adjusted by
subtracting foreign liabilities, if any
Revised version November 2014 Ed Dolan’s Econ Blog
5. The Central Bank Balance Sheet: Liabilities
The sum of the items on the
liabilities side of the balance sheet is
called the monetary base, which
consists of two parts
Reserve deposits that private
commercial banks hold with the
central bank
Currency (paper money)
Revised version November 2014 Ed Dolan’s Econ Blog
6. The Central Bank and Commercial Banks
The central bank balance sheet is
linked to those of commercial banks
through reserves of liquid assets held
by commercial banks:
Reserves of currency used to fill ATM
machines and serve other needs
Reserve deposits in accounts that
commercial banks maintain with the
central bank
Loans to consumers and firms are
banks’ main income-earning assets
Bank deposits held by consumers and
business firms are banks largest
category of liabilities
Revised version November 2014 Ed Dolan’s Econ Blog
7. The Complete Financial System
We complete our stylized picture of the
financial system by adding the balance
sheet of the “nonfinancial public,”
consisting of all private firms except
commercial banks and all households
The public balance sheet is linked to the
central bank via currency—an asset of
the public and a liability of the central
bank
Bank deposits are an asset of the public
and a liability of commercial banks
Loans—an asset of commercial banks
and a liability of the public—are the last
important link among the balance sheets
Revised version November 2014 Ed Dolan’s Econ Blog
8. The Money Stock and the Equation of Exchange
The nation’s money stock or money
supply consists of the total value of
currency and bank deposits held by the
public. (Currency held by banks is not
included). The most common measure of
the money stock is known as M2
In practice, bank deposits form 80 to 90
percent of the money stock in the
monetary systems of developed
countries, and currency plays a minor
role
Revised version November 2014 Ed Dolan’s Econ Blog
9. Central Bank Open Market Operations
Open market operations are one of the
most important tools that central banks
use to control the money stock
These are purchases or sales of assets
(usually government securities) from or to
the public via secondary markets that are
open to all buyers and sellers—hence the
name “open market” operations.
Note: This and subsequent slides use “T-accounts,”
which are simplified balance
sheets that only show items that change
as a result of whatever operation we are
discussing
Revised version November 2014 Ed Dolan’s Econ Blog
10. Open Market Operations Step-by-Step
Step1: The central bank adds to its
holdings of domestic securities by buying
them from a bank
Step 2: In return, the central bank credits
an equal amount to the bank’s reserve
account
Step 3: The result is an increase in bank
reserves and in the monetary base
Revised version November 2014 Ed Dolan’s Econ Blog
11. Open Market Operations: Alternative Version
Step1a: Alternatively, the central bank
could buy the securities from dealers who
are not banks or from other members of
the public
Step 2a: The central bank pays for the
securities using a payment order that is
executed through the banking system.
Sellers of the securities receive payment
as deposits added to their bank accounts
Step 3a: To complete the payment
process, the central bank adds an equal
amount to the reserve deposit of the
commercial bank or banks where the
sellers keep their accounts
Revised version November 2014 Ed Dolan’s Econ Blog
12. Further effects of open market operations
The immediate effects of an open market
operation are increase in bank reserves
and the monetary base
Subsequently, banks may make new
loans to members of the nonfinancial
public
If they do so, the proceeds of the loans
are paid out to the borrowers in the form
of added bank deposits. The result is a
further expansion of the money supply
with no further change in reserves or the
monetary base
Revised version November 2014 Ed Dolan’s Econ Blog
13. The Costs of QE: Recycling Interest Payments
What, if anything, is the cost of QE to the
Fed? To the government as a whole?
When the Fed buys securities, interest it
collects is a source of income for the
Fed, but the Fed is not allowed to profit
from it.
After deducting its operating costs, it
turns any surplus back to the Treasury.
In the simplest case, where the securities
purchased are government bonds, QE is
purely a bookkeeping operation with no
immediate cost to the Fed or to the
government as a whole
The Fed
The
Treasury
Treasury photo by David Monack, http://commons.wikimedia.org/wiki/File:GallatinTreas.jpg
Revised version November 2014 Ed Dolan’s Econ Blog
16. Effects of Open Market Purchase: Traditional Textbook Version
According to a traditional textbook model,
open market operations affect the economy
through two key ratios:
The ratio of the M2 money supply to the
monetary base is known as the money
multiplier
The ratio of nominal GDP to the money
supply is known as the velocity of circulation
of money, or, for short, simply velocity
If the money multiplier and velocity were
fixed constants, then the Fed could control
the economy as easily as a child can control
a model train
Revised version November 2014 Ed Dolan’s Econ Blog
17. Before QE
The first massive purchases of
assets by the Fed, now known as
QE1, began in mid-2008
Before that time, the money
multiplier and velocity ratios in
reality been approximately constant,
as we can see from the fact that the
monetary base, the money stock,
and nominal GDP tracked closely
together.
Note: In this and the following
figures, the base, the money stock,
and GDP are all charted with their
values for Jan. 2008 = 100
Revised version November 2014 Ed Dolan’s Econ Blog
18. Effects of QE1
As soon as the Fed began the first
phase of QE, however, the
economy stopped behaving
according to the textbook model
The monetary base grew rapidly,
but the money stock grew only
slightly. The growing gap between
the curves indicates a rapidly falling
money multiplier
The money stock increased but
nominal GDP at first continued to
fall. The gap between the curves
indicates a decrease in velocity
Revised version November 2014 Ed Dolan’s Econ Blog
19. From QE1 to QE2
Because QE1 failed to get the
economy back on track, the Fed
decided to try again. From late 2010
to mid-2011, it carried out an
additional large scale purchase of
assets that became known as QE2
Nominal GDP did begin slowly to
increase, but the effects of QE2
were weak and the curves
continued to diverge
Revised version November 2014 Ed Dolan’s Econ Blog
20. Finally, QE3
In September 2012 the Fed decided
to begin a third round of easing, QE3
Unlike QE1 and QE2, QE3 had no
specified end date, but was intended
to continue until the economy
improved
As under QE1 and QE2, the curves
continued to diverge. There was no
mechanical linkage between
monetary policy and the economy as
a whole, but nominal GDP did
continue to grow and the economy
began slowly to improve
Revised version November 2014 Ed Dolan’s Econ Blog
21. Progress toward the Fed’s Targets
The Fed sets official targets of
2 percent for inflation and
5.25-5.75 percent for
unemployment
By late 2014, unemployment
had fallen to 5.9 percent. The
Fed decided that there had
been enough progress toward
the targets to bring QE3
officially to a close
Did QE work? Can the Fed
take credit for the recovery, or
would the economy have
recovered anyway?
Revised version November 2014 Ed Dolan’s Econ Blog
22. How QE may have worked
Supporters of QE say we should not expect it
to work through rigid ratios like the money
multiplier and velocity
One theory says that it works by changing
the relative amounts of long- and short-term
securities, thereby lowering long-term rates,
supporting stock prices, and encouraging
investment
Another theory says the most important
effect is forward guidance, that is, changing
people’s expectations about what the Fed will
do in the future
Jackson Hole, Wyoming
Source: Enricokamasa via
http://commons.wikimedia.org/wiki/File:Corbet
%27s_Couloir_jackson_hole.jpg
For a detailed discussion of how QE
works, see this paper by Michael
Woodford presented at the Fed’s 2012
conference in Jackson Hole, WY
Revised version November 2014 Ed Dolan’s Econ Blog
23. Monetary vs. Fiscal Policy
Supporters of QE place part of the
blame for a slow recovery on fiscal
policy, which is beyond the Fed’s
control
Despite some stimulus in 2008 and
2009, fiscal policy soon became tighter
as Congress cut spending to reduce the
federal deficit (see chart on next slide)
In the words of former Fed chairman
Ben Bernanke, “Monetary policy cannot
achieve by itself what a broader and
more balanced set of economic policies
might achieve.” (Speech of Aug 31, 2012)
Revised version November 2014 Ed Dolan’s Econ Blog
vs.
24. US Fiscal Policy, 2006-2014
The best single measure of the
stance of fiscal policy is the
primary structural balance
(PSB), which is the surplus or
deficit, excluding interest
payments, that would prevail if the
economy were at full employment
Fiscal policy moves adds stimulus
if the PSB decreases (down on the
chart) from year to year and
restraint if it increases (up)
After 2009, fiscal restraint offset
much of the monetary stimulus
from quantitative easing
(Follow this link for a more detailed discussion)
Revised version November 2014 Ed Dolan’s Econ Blog
25. The Bottom Line
The US experience with quantitative
easing shows that during a deep
recession, the central bank’s control
over the economy is weak. Trying to
stimulate the economy with monetary
policy alone is like “pushing a string.”
Tight fiscal policy further limited the
effectiveness of quantitative easing.
Nonetheless, it is likely that QE did
have a positive effect. Very likely the
recession would have been even
deeper and the recovery even slower
without it.
Revised version November 2014 Ed Dolan’s Econ Blog
26. For more slideshows and commentary, follow Ed Dolan’s Econ Blog
Like this slideshow?
Follow @DolanEcon on Twitter
Click here to learn more about Ed Dolan’s Econ texts