Why does interest rate policy not work in the economy as economic theory suggests?To understand why,you need to look at the economy from a higher level of abstraction.With this approach,only two states of the economy ...Why does interest rate policy not work in the economy as economic theory suggests?To understand why,you need to look at the economy from a higher level of abstraction.With this approach,only two states of the economy can be distinguished.The first is a“normal”state;the second is crisis and recession.The“normal”state is the period after the recession and before the next crisis.During this period,the basic laws of the market economy work.During a crisis,the relationship between the level of interest rates and borrowing by households and businesses is broken.This explains the ineffectiveness of the policy of lowering interest rates.Different states of the economy have their own laws,and you cannot extrapolate tools that are successful under“normal”market conditions linearly to the crisis state of the economy.Why does the interest rate policy during the period of the“normal”state of the economy not adjust its development in order to prevent the onset of the crisis?Firstly,the conditions for the emergence of crisis phenomena are created by the interest rate policy at the very beginning of the business cycle,when central banks set and maintain low interest rates for a relatively long period.Secondly,by the end of the business cycle,the credit burden in economy reaches its maximum,so there is no further possibility of expanding effective demand by decreasing interest rates.Thirdly,interest rate policy is an instrument for rough adjustment of the economy,indiscriminately affecting all participants in economic relations.In an attempt to stimulate the economy,the central bank creates the conditions for increasing its imbalance.Fourth,at the end of the business cycle,the interest rate policy does not actually support the real economy,but only the stock market.Fifth,the Fed’s policy has formed a pro-crisis conditioned reflex among market participants.Thus,central banks should leave the determination of the level of interest rates to the free market.展开更多
This study tries to develop and use a small macroeconometric model to capture the main short-term macro dynamics and to forecast major macroeconomic variables of the Malawian economy. The results show that a reduction...This study tries to develop and use a small macroeconometric model to capture the main short-term macro dynamics and to forecast major macroeconomic variables of the Malawian economy. The results show that a reduction in the policy rate leads to a fall in the lending rate, but with an increase in money supply, and with an insignificant impact on output growth. The results suggest that monetary authorities in Malawi have to make a choice between the objectives of maintaining lower money supply and lowering the lending rate. The results also suggest that, despite the Reserve Bank of Malawi Act of 1989 stipulating that monetary authorities should pursue both price and high growth and employment objectives, our results reveal that price stability is the principal objective of monetary policy in the country. Suggesting that monetary authorities in the country should not only place more emphasis on the objective of stabilization and achieving low inflation, but also focus on supporting strong, sustained and shared growth. To some extent further suggesting that emphasis should be placed on policies and strategies aimed at structurally transforming the Malawian economy so that the monetary policies’ impact should translate into an increase in the country’s output and growth. Further suggesting enhanced effective coordination between fiscal and monetary policies.展开更多
The covID-19 outbreak has brought unprecedented social attention to economic uncertainty and negative interest rate policy(NIRP).How does uncertainty affect economic activity,and how effective is a NIRP based on centr...The covID-19 outbreak has brought unprecedented social attention to economic uncertainty and negative interest rate policy(NIRP).How does uncertainty affect economic activity,and how effective is a NIRP based on central bank digital currency(CBDC)?To answer the two questions,we constructed a dynamic stochastic general equilibrium(DSGE)model that accommodates sticky prices and wages.The results indicated:(i)Economic uncertainty has substantially reduced investment,output,wage,and loans,which increases unemployment risk.In the short term,it has triggered impulsive consumption by households,while consumption has fallen into a slump in the long run.(ii)After suffering an uncertainty shock,the economy entered short-term stagflation and long-term deflation.The short-term stagflation was mainly caused by resident wage adjustment,and the long-term deflation was due to the decline in effective demand caused by unemployment risk.(ii)CBDC could eliminate the zero lower bound(ZLB)constraint,thereby improving the effectiveness of NIRP.Compared with traditional currency,CBDCbased NIRP could more effectively smooth macroeconomic fluctuations and alleviate the negative impact of an uncertainty shock,which is more conducive to restoring market confidence and promoting economic recovery.展开更多
In April 2013,the Bank of Japan(BOJ)introduced an inflation target of 2%with the aim of overcoming deflation and achieving sustainable economic growth.But due to lower international oil prices it was unable to achieve...In April 2013,the Bank of Japan(BOJ)introduced an inflation target of 2%with the aim of overcoming deflation and achieving sustainable economic growth.But due to lower international oil prices it was unable to achieve this target and was forced to take further measures.Hence,in February 2016,the BOJ adopted a negative interest rate policy by massively increasing the money supply through the purchase of long-term Japanese government bonds(JGB).The BOJ had previously only purchased short-term government bonds,a policy that flattened the yield curve of JGBs.On the one hand,banks reduced the number of government bonds they purchased because short-term bond yields had become negative.The interest rates of long-term government bond up to 15 years even became negative.On the other hand,bank loans to corporates did not increase,due to Japanese economy’s vertical investment-saving(IS)curve.The purpose of this paper is to show that the monetary policy through implementation of the zero interest rate and more recently through the negative interest rate could not help the Japanese economy to recover from the long-lasting recession and these are not the remedy.It is of key importance to make the IS curve downward rather than vertical.That means the rate of return on investment must be positive and companies must be willing to invest even if interest rates are set too low.Japan’s long-term recession is due to structural problems that cannot be solved by its current monetary policy.The paper also explains why the BOJ has to reduce its 2%inflation target in the present low oil price era.展开更多
This paper theoretically considers the long-run sustainability of China's monetary-cum-exchange rate policy under the impossible trinity.Two different models are examined:One sterilizes current net foreign assets(...This paper theoretically considers the long-run sustainability of China's monetary-cum-exchange rate policy under the impossible trinity.Two different models are examined:One sterilizes current net foreign assets(NFAs)and the other focuses on NFAs realized in the previous period.Under the de facto opening of financial flows,sterilization yields a negative risk premium in uncovered interest parity(UIP)that triggers a feedback increase among capital inflows.Here,stability depends on the magnitudes and the combination of structural and policy parameters.It is shown that if current capital inflows are sterilized,the monetary-cum-exchange rate policy in China offers a sustainable solution for exchange rates that are relatively stringently managed.However,such a solution can be obtained for relatively flexible or moderately managed rates if sterilization policy is implemented on the previous period's inflows.展开更多
China’s central bank has unveiled its market-oriented proposals on interest rate policies. The People’s Bank of China said that China’s interest rate market reform would give priority to foreign currencies, rather ...China’s central bank has unveiled its market-oriented proposals on interest rate policies. The People’s Bank of China said that China’s interest rate market reform would give priority to foreign currencies, rather than the Chinese currency. That means the day when the fluctuation of interest rates of foreign currencies will be liberalized would come before the floating of the Renmenbi rate.展开更多
Based on the modern monetary theory, this paper analyze the relation between interest rate policy and Shanghai and Shenzhen Stock Exchange by using event study and co\|integration model method. We point out that the i...Based on the modern monetary theory, this paper analyze the relation between interest rate policy and Shanghai and Shenzhen Stock Exchange by using event study and co\|integration model method. We point out that the interest rate policy have some abnormal effects on the stock market in short time and have negative effects on the stock market in long run. The influence of the interest rate is different on Shanghai Stock Exchange and Shenzhen Stock Exchange.展开更多
This study examines an incentive of the credit rating agency(CRA)to exert effort to observe projects’signals and strategically disclose ratings when the upfront fee and performance-based fee scheme are imposed.Under ...This study examines an incentive of the credit rating agency(CRA)to exert effort to observe projects’signals and strategically disclose ratings when the upfront fee and performance-based fee scheme are imposed.Under the upfront fee scheme,the CRA obtains an upfront fee in exchange for its services but gains a performance-based fee only if its ratings accurately foresee the rated project’s outcome.In the setting,an issuer solicits a rating from the CRA,whose conduct of inflating and deflating ratings is considered.In addition,the CRA can endogenously exert effort to observe a project’s signal,which specifies the signal accuracy and how much operating costs the CRA incurs.After receiving the observed signal,the CRA can strategically decide to announce a rating corresponding to or contradicting the observed signal.The findings reveal that the performance-based fee scheme incentivizes the CRA to exert greater effort and truthfully disclose a more accurate rating.展开更多
This paper looks at the foreign exchange rates (FX rates) and specifically the RMB/US dollar exchange rate issue from the international political economy (IPE) perspective. It argues that in reality, the US-China ...This paper looks at the foreign exchange rates (FX rates) and specifically the RMB/US dollar exchange rate issue from the international political economy (IPE) perspective. It argues that in reality, the US-China debate on the renminbi (RMB) exchange rate and the new reform initiated on July 21,2005 is Hot only an economic issue, but more than that, an issue of political economy, that is determined by the dynamic interaction of various economic and political factors at both the national and international levels.展开更多
Pegging the RMB exchange rate to the Asian short term, been proved a better solution than currency unit (A CU) has not, at least in the pegging to the US dollar or pegging to a G- 3 (US$, Japaneseyen and euro) cur...Pegging the RMB exchange rate to the Asian short term, been proved a better solution than currency unit (A CU) has not, at least in the pegging to the US dollar or pegging to a G- 3 (US$, Japaneseyen and euro) currency basket. Although the Asian currency unit can help Asian economies to keep the relative price of regional currencies stable, the cost of joining a formal regional monetary cooperation is the relinquishment of the autonomy of their domestic policies. Asian monetary cooperation needs to provide more potential benefits if it is to attract Asian economies. We argue that Asian monetary cooperation should be designed to solve the problem of regional trade imbalance, and regional exchange rate policy coordination should be adopted as the first step towards exchange rate cooperation.展开更多
This paper interest rates (i.e., the recent macroeconomic presents an IS-MP model with the term structure of yield curve) and discusses some of its applications to activities and policy issues. Specifically, the mod...This paper interest rates (i.e., the recent macroeconomic presents an IS-MP model with the term structure of yield curve) and discusses some of its applications to activities and policy issues. Specifically, the model is employed to explain (1) why a steepening yield curve may signal the subsequent economic expansion, (2) why long-term zero interest rate policy (ZIRP) may not completely avoid recessions, but disables the yield curve from being inverted to signal the following economic recession, (3) how Operation Twist (OT) may help ease the recession, in particular, under ZIRP, and what limit it may face.展开更多
文摘Why does interest rate policy not work in the economy as economic theory suggests?To understand why,you need to look at the economy from a higher level of abstraction.With this approach,only two states of the economy can be distinguished.The first is a“normal”state;the second is crisis and recession.The“normal”state is the period after the recession and before the next crisis.During this period,the basic laws of the market economy work.During a crisis,the relationship between the level of interest rates and borrowing by households and businesses is broken.This explains the ineffectiveness of the policy of lowering interest rates.Different states of the economy have their own laws,and you cannot extrapolate tools that are successful under“normal”market conditions linearly to the crisis state of the economy.Why does the interest rate policy during the period of the“normal”state of the economy not adjust its development in order to prevent the onset of the crisis?Firstly,the conditions for the emergence of crisis phenomena are created by the interest rate policy at the very beginning of the business cycle,when central banks set and maintain low interest rates for a relatively long period.Secondly,by the end of the business cycle,the credit burden in economy reaches its maximum,so there is no further possibility of expanding effective demand by decreasing interest rates.Thirdly,interest rate policy is an instrument for rough adjustment of the economy,indiscriminately affecting all participants in economic relations.In an attempt to stimulate the economy,the central bank creates the conditions for increasing its imbalance.Fourth,at the end of the business cycle,the interest rate policy does not actually support the real economy,but only the stock market.Fifth,the Fed’s policy has formed a pro-crisis conditioned reflex among market participants.Thus,central banks should leave the determination of the level of interest rates to the free market.
文摘This study tries to develop and use a small macroeconometric model to capture the main short-term macro dynamics and to forecast major macroeconomic variables of the Malawian economy. The results show that a reduction in the policy rate leads to a fall in the lending rate, but with an increase in money supply, and with an insignificant impact on output growth. The results suggest that monetary authorities in Malawi have to make a choice between the objectives of maintaining lower money supply and lowering the lending rate. The results also suggest that, despite the Reserve Bank of Malawi Act of 1989 stipulating that monetary authorities should pursue both price and high growth and employment objectives, our results reveal that price stability is the principal objective of monetary policy in the country. Suggesting that monetary authorities in the country should not only place more emphasis on the objective of stabilization and achieving low inflation, but also focus on supporting strong, sustained and shared growth. To some extent further suggesting that emphasis should be placed on policies and strategies aimed at structurally transforming the Malawian economy so that the monetary policies’ impact should translate into an increase in the country’s output and growth. Further suggesting enhanced effective coordination between fiscal and monetary policies.
基金the National Planning Office of Philosophy and Social Science of China(Grant No.21BJY206)。
文摘The covID-19 outbreak has brought unprecedented social attention to economic uncertainty and negative interest rate policy(NIRP).How does uncertainty affect economic activity,and how effective is a NIRP based on central bank digital currency(CBDC)?To answer the two questions,we constructed a dynamic stochastic general equilibrium(DSGE)model that accommodates sticky prices and wages.The results indicated:(i)Economic uncertainty has substantially reduced investment,output,wage,and loans,which increases unemployment risk.In the short term,it has triggered impulsive consumption by households,while consumption has fallen into a slump in the long run.(ii)After suffering an uncertainty shock,the economy entered short-term stagflation and long-term deflation.The short-term stagflation was mainly caused by resident wage adjustment,and the long-term deflation was due to the decline in effective demand caused by unemployment risk.(ii)CBDC could eliminate the zero lower bound(ZLB)constraint,thereby improving the effectiveness of NIRP.Compared with traditional currency,CBDCbased NIRP could more effectively smooth macroeconomic fluctuations and alleviate the negative impact of an uncertainty shock,which is more conducive to restoring market confidence and promoting economic recovery.
文摘In April 2013,the Bank of Japan(BOJ)introduced an inflation target of 2%with the aim of overcoming deflation and achieving sustainable economic growth.But due to lower international oil prices it was unable to achieve this target and was forced to take further measures.Hence,in February 2016,the BOJ adopted a negative interest rate policy by massively increasing the money supply through the purchase of long-term Japanese government bonds(JGB).The BOJ had previously only purchased short-term government bonds,a policy that flattened the yield curve of JGBs.On the one hand,banks reduced the number of government bonds they purchased because short-term bond yields had become negative.The interest rates of long-term government bond up to 15 years even became negative.On the other hand,bank loans to corporates did not increase,due to Japanese economy’s vertical investment-saving(IS)curve.The purpose of this paper is to show that the monetary policy through implementation of the zero interest rate and more recently through the negative interest rate could not help the Japanese economy to recover from the long-lasting recession and these are not the remedy.It is of key importance to make the IS curve downward rather than vertical.That means the rate of return on investment must be positive and companies must be willing to invest even if interest rates are set too low.Japan’s long-term recession is due to structural problems that cannot be solved by its current monetary policy.The paper also explains why the BOJ has to reduce its 2%inflation target in the present low oil price era.
文摘This paper theoretically considers the long-run sustainability of China's monetary-cum-exchange rate policy under the impossible trinity.Two different models are examined:One sterilizes current net foreign assets(NFAs)and the other focuses on NFAs realized in the previous period.Under the de facto opening of financial flows,sterilization yields a negative risk premium in uncovered interest parity(UIP)that triggers a feedback increase among capital inflows.Here,stability depends on the magnitudes and the combination of structural and policy parameters.It is shown that if current capital inflows are sterilized,the monetary-cum-exchange rate policy in China offers a sustainable solution for exchange rates that are relatively stringently managed.However,such a solution can be obtained for relatively flexible or moderately managed rates if sterilization policy is implemented on the previous period's inflows.
文摘China’s central bank has unveiled its market-oriented proposals on interest rate policies. The People’s Bank of China said that China’s interest rate market reform would give priority to foreign currencies, rather than the Chinese currency. That means the day when the fluctuation of interest rates of foreign currencies will be liberalized would come before the floating of the Renmenbi rate.
文摘Based on the modern monetary theory, this paper analyze the relation between interest rate policy and Shanghai and Shenzhen Stock Exchange by using event study and co\|integration model method. We point out that the interest rate policy have some abnormal effects on the stock market in short time and have negative effects on the stock market in long run. The influence of the interest rate is different on Shanghai Stock Exchange and Shenzhen Stock Exchange.
文摘This study examines an incentive of the credit rating agency(CRA)to exert effort to observe projects’signals and strategically disclose ratings when the upfront fee and performance-based fee scheme are imposed.Under the upfront fee scheme,the CRA obtains an upfront fee in exchange for its services but gains a performance-based fee only if its ratings accurately foresee the rated project’s outcome.In the setting,an issuer solicits a rating from the CRA,whose conduct of inflating and deflating ratings is considered.In addition,the CRA can endogenously exert effort to observe a project’s signal,which specifies the signal accuracy and how much operating costs the CRA incurs.After receiving the observed signal,the CRA can strategically decide to announce a rating corresponding to or contradicting the observed signal.The findings reveal that the performance-based fee scheme incentivizes the CRA to exert greater effort and truthfully disclose a more accurate rating.
文摘This paper looks at the foreign exchange rates (FX rates) and specifically the RMB/US dollar exchange rate issue from the international political economy (IPE) perspective. It argues that in reality, the US-China debate on the renminbi (RMB) exchange rate and the new reform initiated on July 21,2005 is Hot only an economic issue, but more than that, an issue of political economy, that is determined by the dynamic interaction of various economic and political factors at both the national and international levels.
文摘Pegging the RMB exchange rate to the Asian short term, been proved a better solution than currency unit (A CU) has not, at least in the pegging to the US dollar or pegging to a G- 3 (US$, Japaneseyen and euro) currency basket. Although the Asian currency unit can help Asian economies to keep the relative price of regional currencies stable, the cost of joining a formal regional monetary cooperation is the relinquishment of the autonomy of their domestic policies. Asian monetary cooperation needs to provide more potential benefits if it is to attract Asian economies. We argue that Asian monetary cooperation should be designed to solve the problem of regional trade imbalance, and regional exchange rate policy coordination should be adopted as the first step towards exchange rate cooperation.
文摘This paper interest rates (i.e., the recent macroeconomic presents an IS-MP model with the term structure of yield curve) and discusses some of its applications to activities and policy issues. Specifically, the model is employed to explain (1) why a steepening yield curve may signal the subsequent economic expansion, (2) why long-term zero interest rate policy (ZIRP) may not completely avoid recessions, but disables the yield curve from being inverted to signal the following economic recession, (3) how Operation Twist (OT) may help ease the recession, in particular, under ZIRP, and what limit it may face.