Doubling Your Monetary Base and Surviving: Some International Experience

Anderson, Richard G.; Gascon, Charles S.; Liu, Yang

doi:10.20955/r.92.481-506

Cited by 8 publications

(13 citation statements)

References 54 publications

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“…This is subtly different from a commitment to be irresponsible.6 There is a potential downside to a commitment to low interest rates through asset purchases. The public might lose confidence in the central bank's ability to reverse asset purchases, which could unmoor inflation expectations (see, e.g.,Anderson, Gascon, and Liu, 2010). An alternative is to purchase a carefully chosen portfolio of interest rate derivatives that would lose value if short-term interest rates increased faster than a time path announced by the central bank (see, e.g.,Krippner and Thornton, 2012).…”

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“…Anderson, Gascon, and Liu (2010) survey a large cross section of central banks that have doubled their monetary base, but their work reflects only the first wave of the recent QE programs.3 In the context of borrowing and lending, "adverse selection" is the tendency of individuals and firms with bad credit to be more likely to seek loans from banks; and "moral hazard" is the tendency of borrowers to engage in risky activities that will make it less likely that they will repay their loans. Both adverse selection and moral hazard are problems because of the existence of "asymmetric information, " which means that borrowers know things about their ability to repay that lenders do not.4 In 2008 Congress granted the Federal Reserve the authority to begin paying interest on banks' excess reserves to improve the New York Fed's ability to manage the funds target and remove an implicit tax on holding reserves.…”

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Four Stories of Quantitative Easing

Fawley¹,

Neely²

2013

183

121

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entral banks typically conduct monetary policy through control of short-term nominal interest rates that can potentially affect the economy through a variety of channels. Because inflation expectations do not immediately react one for one to changes in nominal interest rates, central banks can also control real interest rates, at least over the short to medium term. The typical assumption is that monetary policy changes real (inflation-adjusted) short-term rates to influence economic decisions through their effect on other asset prices. That is, real interest rates will change asset prices in such a way as to change the willingness of banks to lend, firms to invest, or individuals to consume or invest in housing. Thus, a change in short-term real interest rates potentially influences the level of output and employment. Because people can always hold currency instead of depositing it in a bank, short-term nominal interest rates cannot go (much) below zero, which limits the effectiveness of conventional monetary policy. 1 Concerns about the consequences of the zero bound for interest rates date at least to Keynes (1936), and many observers have believed that central banks are helpless when short-term rates are near the zero bound. Many others, however, have argued that central banks can influence prices and output even when short-term rates are near their zero floor by increasing liquidity, particularly by purchasing long-term assets. For example, Mishkin (1996) This article describes the circumstances of and motivations for the quantitative easing programs of the Federal Reserve, Bank of England, European Central Bank, and Bank of Japan during the recent financial crisis and recovery. The programs initially attempted to alleviate financial market distress, but this purpose soon broadened to include achieving inflation targets, stimulating the real economy, and containing the European sovereign debt crisis. The European Central Bank and Bank of Japan focused their programs on direct lending to banks-reflecting the bank-centric structure of their financial systemswhile the Federal Reserve and the Bank of England expanded their respective monetary bases by purchasing bonds. (JEL E51, E58, E61, G12)

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Four Stories of Quantitative Easing

Fawley¹,

Neely²

2013

183

121

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“…As a result, the money-supply multipliers substantially decreased. 2 The monetary policy dilemma the Fed must now confront is that if the money multipliers rapidly increase towards their pre-crisis levels then a radical increase in the money supply and consequent significant inflation will surely result. This is a problematic fact that looms over Fed policy, a problem examined here.…”

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Decomposing US Money Supply Changes since the Financial Crisis

Robinson

Nasser

2013

IJFS

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In response to the financial crisis of 2008, the Federal Reserve radically increased the monetary base. Banks responded by increasing excess reserves rather than increasing bank loans, and the public responded with a substantial flight to liquidity in the form of currency and demand deposits. As a result, the money-supply multipliers substantially decreased, so that the actual money supply measures grew more moderately than the base. The sustained multiplier-collapse spawned reexamination of monetary versus fiscal theories of price-level determination. This paper, however, presents decompositions of the money-multiplier collapse into changes in the currency-to-deposit ratios, and changes in the reserve-to-deposit ratio. By doing so, possible near-term increases in the multipliers are simulated so that the possibility of either full or partial restoration to their pre-crisis levels is assessed. Policy possibilities for controlling the money supply over various horizons follow. This analysis illustrates the Federal Reserve’s exit dilemma that results from its financial-crisis policy

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“…Because both CE and QE affect market interest rates, the line between the two is not always distinct. (Anderson, Gascon, and Liu, 2010).…”

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Quantitative Easing the Swedish Way

Anderson¹

2012

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(Anderson, Gascon, and Liu, 2010).Generally speaking, QE programs seek to (i) increase asset prices throughout the economy and (ii) reinforce "forward guidance"-that is, policymakers' commitment to sustain the policy rate at an unusually low level for a significant period (Eggertsson and Woodford, 2003). Most central banks tend to implement QE through large-scale purchases of government securities or similar assets. The Riksbank's executive board considered but decided against purchasing assets, in part because banks play a larger role than financial markets in Sweden's credit system. The Riksbank began QE with a July 2009 auction to banks of SEK 100 billion in 12-month, fixed-rate loans at a minimum auction interest rate of 0.40 percent. 3 Two more auctions followed. By November, SEK 296. J a n -2 0 0 7 J u l -2 0 0 7 J a n -2 0 0 8 J u l -2 0 0 8 J a n -2 0 0 9 J u l -2 0 0 9 J a n -2 0 1 0 J u l -2 0 1 0 J a n -2 0 1 1 J u l -2 0 1 1 J a n -2 0 1 2

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Doubling Your Monetary Base and Surviving: Some International Experience

Cited by 8 publications

References 54 publications

Four Stories of Quantitative Easing

Four Stories of Quantitative Easing

Decomposing US Money Supply Changes since the Financial Crisis

Quantitative Easing the Swedish Way

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