The BOJ has introduced a new monetary policy framework of "yield curve control" consisting of two components: 1) targeting long-term interest rates and 2) committing to overshooting its 2% inflation target. This represents a further step in unconventional monetary policy beyond quantitative easing (QE). By targeting long-term rates, the BOJ aims to add monetary stimulus while avoiding the limitations and market distortions of QE. However, long-term rate targeting also presents risks to the BOJ's balance sheet from unpredictable bond purchases needed to maintain its target.
The document discusses monetary policy tools used by central banks like the Federal Reserve to influence money supply and credit conditions to promote economic goals of maximum employment, stable prices, and moderate interest rates. It outlines the Fed's dual mandate from Congress, describes various policy tools like open market operations and interest rates, and explains how the Fed uses communication strategies like forward guidance and economic forecasts to provide transparency and influence public expectations.
The document discusses several monetary policy tools used by the Federal Reserve:
1) Open market operations, where the Fed buys or sells bonds to influence the money supply and interest rates. This is the most flexible and reversible tool.
2) The discount rate, which is the interest rate banks pay to borrow from the Fed. Lowering this rate makes borrowing cheaper and expands the money supply.
3) Reserve requirements, which set the minimum reserves banks must hold. Lowering these ratios expands the money supply by increasing bank lending capacity.
The Federal Reserve introduced new lending facilities like the Term Auction Facility, Term Securities Lending Facility, and Primary Dealer Credit Facility to promote liquidity in financial markets during the crisis. These facilities allow banks and dealers to borrow against collateral at auctioned rates. While they have increased liquidity, the Fed still faces risks around moral hazard and controlling inflation if lending standards are not maintained as financial markets stabilize. The success of the Fed's actions depends on restoring confidence without re-inflating asset prices.
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.
The document discusses the transmission mechanism of monetary policy through four key points:
1. It introduces the transmission mechanism and defines it as the series of links between monetary policy changes and their impacts on output, employment, and inflation.
2. It outlines the session, which will cover the impact of interest rate changes on other interest rates, consumption, and investment.
3. It provides brief definitions and discussions of consumption and investment, and how monetary policy influences them through several channels like interest rates, asset prices, and exchange rates.
4. It notes that monetary policy is likely to influence aggregate demand in various ways and that the relationship between interest rates and aggregate demand is complex, being influenced by expectations and time
The document summarizes the main monetary policy tools of the Federal Reserve:
1) Open market operations where the Fed buys and sells government securities to increase or decrease the monetary base and influence interest rates. This is the most direct way to impact the money supply.
2) Reserve requirements where adjusting the percentage of deposits banks must keep impacts how much they can lend. Higher requirements reduce lending while lower requirements increase it.
3) Discount window lending where the Fed lends reserves to banks at the discount rate to meet depositors' demands or reserve requirements. The Fed can raise or lower the discount rate to slow or stimulate economic activity.
This document discusses the monetary policy making process in the United States. It outlines the key bodies that are involved, including the Board of Governors of the Federal Reserve and the Federal Open Market Committee (FOMC). The FOMC, composed of Federal Reserve governors and regional bank presidents, meets regularly to review economic conditions and formulate monetary policy by setting directives for open market operations. The document also discusses strategies for monetary policy, including targeting monetary aggregates or interest rates as intermediate goals to influence ultimate targets like inflation and unemployment. It notes the ideal conditions and limitations of using monetary aggregates as an intermediate target.
This document discusses macroeconomic topics such as inflation targeting, Taylor's rule, and the Reserve Bank of India's monetary policy review. It provides details on India's current inflation rate and GDP growth projections. It then explains flexible inflation targeting, which aims to stabilize both inflation around a target rate and the real economy. Some challenges of flexible inflation targeting are also outlined. The document discusses nominal GDP targeting as an alternative to inflation targeting for developing countries like India that are more susceptible to supply and trade shocks. It considers some remaining questions around implementing nominal GDP targeting in India.
The document discusses monetary policy tools used by central banks like the Federal Reserve to influence money supply and credit conditions to promote economic goals of maximum employment, stable prices, and moderate interest rates. It outlines the Fed's dual mandate from Congress, describes various policy tools like open market operations and interest rates, and explains how the Fed uses communication strategies like forward guidance and economic forecasts to provide transparency and influence public expectations.
The document discusses several monetary policy tools used by the Federal Reserve:
1) Open market operations, where the Fed buys or sells bonds to influence the money supply and interest rates. This is the most flexible and reversible tool.
2) The discount rate, which is the interest rate banks pay to borrow from the Fed. Lowering this rate makes borrowing cheaper and expands the money supply.
3) Reserve requirements, which set the minimum reserves banks must hold. Lowering these ratios expands the money supply by increasing bank lending capacity.
The Federal Reserve introduced new lending facilities like the Term Auction Facility, Term Securities Lending Facility, and Primary Dealer Credit Facility to promote liquidity in financial markets during the crisis. These facilities allow banks and dealers to borrow against collateral at auctioned rates. While they have increased liquidity, the Fed still faces risks around moral hazard and controlling inflation if lending standards are not maintained as financial markets stabilize. The success of the Fed's actions depends on restoring confidence without re-inflating asset prices.
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.
The document discusses the transmission mechanism of monetary policy through four key points:
1. It introduces the transmission mechanism and defines it as the series of links between monetary policy changes and their impacts on output, employment, and inflation.
2. It outlines the session, which will cover the impact of interest rate changes on other interest rates, consumption, and investment.
3. It provides brief definitions and discussions of consumption and investment, and how monetary policy influences them through several channels like interest rates, asset prices, and exchange rates.
4. It notes that monetary policy is likely to influence aggregate demand in various ways and that the relationship between interest rates and aggregate demand is complex, being influenced by expectations and time
The document summarizes the main monetary policy tools of the Federal Reserve:
1) Open market operations where the Fed buys and sells government securities to increase or decrease the monetary base and influence interest rates. This is the most direct way to impact the money supply.
2) Reserve requirements where adjusting the percentage of deposits banks must keep impacts how much they can lend. Higher requirements reduce lending while lower requirements increase it.
3) Discount window lending where the Fed lends reserves to banks at the discount rate to meet depositors' demands or reserve requirements. The Fed can raise or lower the discount rate to slow or stimulate economic activity.
This document discusses the monetary policy making process in the United States. It outlines the key bodies that are involved, including the Board of Governors of the Federal Reserve and the Federal Open Market Committee (FOMC). The FOMC, composed of Federal Reserve governors and regional bank presidents, meets regularly to review economic conditions and formulate monetary policy by setting directives for open market operations. The document also discusses strategies for monetary policy, including targeting monetary aggregates or interest rates as intermediate goals to influence ultimate targets like inflation and unemployment. It notes the ideal conditions and limitations of using monetary aggregates as an intermediate target.
This document discusses macroeconomic topics such as inflation targeting, Taylor's rule, and the Reserve Bank of India's monetary policy review. It provides details on India's current inflation rate and GDP growth projections. It then explains flexible inflation targeting, which aims to stabilize both inflation around a target rate and the real economy. Some challenges of flexible inflation targeting are also outlined. The document discusses nominal GDP targeting as an alternative to inflation targeting for developing countries like India that are more susceptible to supply and trade shocks. It considers some remaining questions around implementing nominal GDP targeting in India.
1) The document discusses topics related to inflation targeting including what it is, why it is controversial, cross-country experiences, how to implement it, and recommendations for India.
2) Inflation targeting is a monetary policy strategy used by central banks to maintain inflation at a specific target level or range through interest rate changes and other monetary actions. It aims to improve transparency but may prioritize inflation over other goals like growth.
3) Implementing inflation targeting requires conditions like central bank independence, developed financial markets, and a flexible exchange rate - conditions many emerging economies like India currently lack.
Monetary policy refers to the use of instruments by central banks to influence aggregate demand and the level of economic activity. The RBI uses various tools of monetary policy including bank rate, open market operations, and reserve requirements to influence the availability and cost of credit. These tools work by affecting the money supply and impacting levels of consumption, investment, and other components of aggregate demand.
Adopting Inflation Targeting for Monetary Policy: Practical Issues for Nigeriaiosrjce
IOSR Journal of Humanities and Social Science is a double blind peer reviewed International Journal edited by International Organization of Scientific Research (IOSR).The Journal provides a common forum where all aspects of humanities and social sciences are presented. IOSR-JHSS publishes original papers, review papers, conceptual framework, analytical and simulation models, case studies, empirical research, technical notes etc.
Inflation targeting in Emerging Market Economies Sarthak Luthra
The presentation represents inflation targeting in EMEs, with a focus on various exchange rate regimes in Asian countries and their susceptibility to financial crisis.
it is a full information for the students according to thrir examinations point of view about monetary policy and objectives,nature, instruments of monitary policy
Monetary policy uses various monetary instruments to regulate money supply and credit in order to promote economic growth and price stability. The objectives of monetary policy include maintaining economic growth, ensuring adequate credit flows, sustaining moderate interest rates, and maintaining price stability. Monetary policy works through interest rate channels, exchange rate channels, money supply and credit channels, and asset price channels to impact macroeconomic variables like aggregate demand, inflation, and national income. The Reserve Bank of India uses tools like cash reserve ratio, statutory liquidity ratio, liquidity adjustment facility, open market operations, and other instruments to implement monetary policy.
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.
The document summarizes monetary policy in India. It discusses how the Reserve Bank of India (RBI) uses various monetary policy tools like open market operations, cash reserve ratio, statutory liquidity ratio, bank rate, repo rate, and reverse repo rate to control money supply and maintain price stability. It notes that RBI recently cut the repo rate by 25 basis points to 7.75% due to falling inflation. The rate cut led to gains in the stock market and currency. Further cuts are expected pending the government's budget and stance on fiscal consolidation.
Monetary policy influences interest rates and money supply to promote economic growth and stability. The central bank uses various tools to implement monetary policy, including open market operations, reserve requirements, and interest rates. Expansionary policy increases money supply to boost the economy during recessions, while contractionary policy decreases money supply to curb inflation. The goals of monetary policy include price stability, full employment, and economic growth. Tools include bank rates, cash reserve ratios, and credit controls.
The document discusses monetary policy, defining it as actions by authorities to influence money supply, interest rates, and money availability to achieve objectives. It outlines the elements of monetary policy as regulating money supply, banking systems, and interest rates. The objectives are listed as regulating money supply, price stability, economic growth, and others. Types of monetary policy controls discussed include quantitative tools like bank rates, cash reserve ratios, and qualitative tools like moral persuasion and credit monitoring. Limitations and ways to improve monetary policy are also presented.
This document discusses monetary policy in India. It provides definitions for various monetary aggregates like M1, M2, M3, and M4. It explains that monetary policy aims to control money supply, interest rates, and credit availability to ultimately influence expenditure and price stability in the economy. The key instruments of monetary policy used by the RBI are reserve ratios, the discount rate, and open market operations. The annual policy statement for 2006-07 from the RBI is also summarized, noting forecasts for GDP growth, inflation, and money supply while keeping rates unchanged.
This document provides an overview of monetary policy in India. It defines monetary policy and outlines its key objectives such as maintaining full employment, price stability, and economic growth. It then describes different types of monetary policy approaches including expansionary, contractionary, countercyclical, rule-based and discretionary. The document also discusses quantitative and qualitative monetary policy tools used by the Reserve Bank of India, including bank rates, open market operations, reserve requirements, and credit rationing. It concludes with recent trends, noting the RBI has kept key policy rates unchanged following COVID-19 disruptions.
The document summarizes the June 2009 Federal Open Market Committee meeting. Key discussion points included the economic and financial outlook, the Federal Reserve's large-scale asset purchase program, liquidity facilities, an exit strategy, and inflation and output gaps. The Committee considered three policy alternatives and ultimately chose to keep the size of the large-scale asset purchase program unchanged. Major speeches given during this period addressed definitions of stability and credit easing measures. Retrospective analysis found that the bank stress tests helped restore confidence and 2009 marked a turning point in the crisis.
This document discusses monetary policy in the Philippines. It begins with introductions of two reporters, Christine Cayanan and Jeremy Reyes. It then provides an overview of monetary policy, describing it as measures taken by the central bank to regulate money supply and influence factors like inflation. It outlines the monetary policy tools used by the Philippines' central bank, the Bangko Sentral ng Pilipinas (BSP), including its policy interest rates, reserve requirements, open market operations, and moral suasion. It also discusses the BSP's inflation targeting framework and privatization policies of the Philippine government.
This document discusses monetary policy in India as administered by the Reserve Bank of India (RBI). It provides background on the RBI, including noting that Dr. Raghuram Rajan is the current governor. It defines monetary policy and notes that RBI announces policy twice yearly to regulate price stability. The objectives of monetary policy are listed as economic growth, full employment, credit flow, price stability, and exchange rate stability. Both quantitative and qualitative tools are discussed, including repo and reverse repo rates, open market operations, cash reserve ratio, statutory liquidity ratio, bank rate, moral suasion, direct action, and regulating consumer credit. Current rates are provided.
Monetary policy refers to actions taken by central banks to control money supply and influence interest rates in order to achieve objectives like price stability and economic growth. There are two types: expansionary monetary policy stimulates the economy by increasing money supply and lowering interest rates, while contractionary policy decreases money supply to reduce inflation by making money less accessible. Central banks use instruments like adjusting interest rates, buying and selling government bonds, and changing bank reserve requirements to implement monetary policy and meet its objectives of full employment, economic growth, price stability, and more.
07 August 2013--Understanding the Fed's Latest MovesEconReport
The Federal Reserve Chairman, Ben Bernanke, made some statements on 19 June 2013 that sent shockwaves
throughout the financial markets in the United States and Asia. There is no change in policy. This, Chairman Bernanke,
emphatically stated several times at the 19 June 2013 press conference. So why did the markets react the way they did?
This analysis will assist in understanding why the markets responded in the manner that they did to Chairman Bernanke's
suggestion that the asset-purchasing program will “taper off” in late 2013 or in mid- to late-2014 although this possibility
is clearly stated in the Federal Reserve's Open Market Committee's (FOMC's) 22 May 2013 statement.
The document discusses the concept of monetary policy, which is managed by central banks like the Reserve Bank of India to control money supply and credit in an economy. It aims to influence economic growth and inflation. The key tools of monetary policy include open market operations, adjusting policy interest rates like repo rates, and changing reserve requirements that commercial banks must maintain. Monetary policy can be expansionary to boost the economy or contractionary to curb inflation. It has a limited effect on variables like output and employment in the short-run.
The document discusses monetary policy and its objectives and tools. The objectives of monetary policy are to ensure economic stability, achieve price stability by controlling inflation and deflation, and promote economic growth. The key tools of monetary policy are quantitative measures like open market operations, cash reserve ratio, and discount rate. Qualitative measures include credit rationing, changing lending margins, moral suasion, and direct controls. Monetary policy uses various tools to contract the money supply and credit to control inflation or expand the money supply and credit to control recession.
The document summarizes the key findings and recommendations of the Chakravarty Committee report on monetary policy in India in the 1980s. The committee was formed to address issues with rising inflation driven by high fiscal deficits and government borrowing from the central bank. It found that money supply growth far exceeded GDP growth, leading to high inflation. It recommended reducing money supply growth, adopting monetary targets, and increasing interest rates to market levels to reduce government borrowing and prioritize price stability. However, critics argued its recommendations lacked specifics and the flexibility in targets would undermine monetary discipline.
Monetary policy aims to influence money supply and interest rates to achieve price stability and maximum employment. The document discusses various monetary policy tools like interest rates and their effects on investment, consumption, employment and inflation. It also discusses the role of central banks in implementing monetary policy through tools like adjusting interest rates and money supply. The upcoming monetary policy meeting of the State Bank of Pakistan is expected to maintain current interest rates given recent improvements in trade deficit and currency stability, though a rate hike is still possible due to high inflation.
1) The document discusses topics related to inflation targeting including what it is, why it is controversial, cross-country experiences, how to implement it, and recommendations for India.
2) Inflation targeting is a monetary policy strategy used by central banks to maintain inflation at a specific target level or range through interest rate changes and other monetary actions. It aims to improve transparency but may prioritize inflation over other goals like growth.
3) Implementing inflation targeting requires conditions like central bank independence, developed financial markets, and a flexible exchange rate - conditions many emerging economies like India currently lack.
Monetary policy refers to the use of instruments by central banks to influence aggregate demand and the level of economic activity. The RBI uses various tools of monetary policy including bank rate, open market operations, and reserve requirements to influence the availability and cost of credit. These tools work by affecting the money supply and impacting levels of consumption, investment, and other components of aggregate demand.
Adopting Inflation Targeting for Monetary Policy: Practical Issues for Nigeriaiosrjce
IOSR Journal of Humanities and Social Science is a double blind peer reviewed International Journal edited by International Organization of Scientific Research (IOSR).The Journal provides a common forum where all aspects of humanities and social sciences are presented. IOSR-JHSS publishes original papers, review papers, conceptual framework, analytical and simulation models, case studies, empirical research, technical notes etc.
Inflation targeting in Emerging Market Economies Sarthak Luthra
The presentation represents inflation targeting in EMEs, with a focus on various exchange rate regimes in Asian countries and their susceptibility to financial crisis.
it is a full information for the students according to thrir examinations point of view about monetary policy and objectives,nature, instruments of monitary policy
Monetary policy uses various monetary instruments to regulate money supply and credit in order to promote economic growth and price stability. The objectives of monetary policy include maintaining economic growth, ensuring adequate credit flows, sustaining moderate interest rates, and maintaining price stability. Monetary policy works through interest rate channels, exchange rate channels, money supply and credit channels, and asset price channels to impact macroeconomic variables like aggregate demand, inflation, and national income. The Reserve Bank of India uses tools like cash reserve ratio, statutory liquidity ratio, liquidity adjustment facility, open market operations, and other instruments to implement monetary policy.
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.
The document summarizes monetary policy in India. It discusses how the Reserve Bank of India (RBI) uses various monetary policy tools like open market operations, cash reserve ratio, statutory liquidity ratio, bank rate, repo rate, and reverse repo rate to control money supply and maintain price stability. It notes that RBI recently cut the repo rate by 25 basis points to 7.75% due to falling inflation. The rate cut led to gains in the stock market and currency. Further cuts are expected pending the government's budget and stance on fiscal consolidation.
Monetary policy influences interest rates and money supply to promote economic growth and stability. The central bank uses various tools to implement monetary policy, including open market operations, reserve requirements, and interest rates. Expansionary policy increases money supply to boost the economy during recessions, while contractionary policy decreases money supply to curb inflation. The goals of monetary policy include price stability, full employment, and economic growth. Tools include bank rates, cash reserve ratios, and credit controls.
The document discusses monetary policy, defining it as actions by authorities to influence money supply, interest rates, and money availability to achieve objectives. It outlines the elements of monetary policy as regulating money supply, banking systems, and interest rates. The objectives are listed as regulating money supply, price stability, economic growth, and others. Types of monetary policy controls discussed include quantitative tools like bank rates, cash reserve ratios, and qualitative tools like moral persuasion and credit monitoring. Limitations and ways to improve monetary policy are also presented.
This document discusses monetary policy in India. It provides definitions for various monetary aggregates like M1, M2, M3, and M4. It explains that monetary policy aims to control money supply, interest rates, and credit availability to ultimately influence expenditure and price stability in the economy. The key instruments of monetary policy used by the RBI are reserve ratios, the discount rate, and open market operations. The annual policy statement for 2006-07 from the RBI is also summarized, noting forecasts for GDP growth, inflation, and money supply while keeping rates unchanged.
This document provides an overview of monetary policy in India. It defines monetary policy and outlines its key objectives such as maintaining full employment, price stability, and economic growth. It then describes different types of monetary policy approaches including expansionary, contractionary, countercyclical, rule-based and discretionary. The document also discusses quantitative and qualitative monetary policy tools used by the Reserve Bank of India, including bank rates, open market operations, reserve requirements, and credit rationing. It concludes with recent trends, noting the RBI has kept key policy rates unchanged following COVID-19 disruptions.
The document summarizes the June 2009 Federal Open Market Committee meeting. Key discussion points included the economic and financial outlook, the Federal Reserve's large-scale asset purchase program, liquidity facilities, an exit strategy, and inflation and output gaps. The Committee considered three policy alternatives and ultimately chose to keep the size of the large-scale asset purchase program unchanged. Major speeches given during this period addressed definitions of stability and credit easing measures. Retrospective analysis found that the bank stress tests helped restore confidence and 2009 marked a turning point in the crisis.
This document discusses monetary policy in the Philippines. It begins with introductions of two reporters, Christine Cayanan and Jeremy Reyes. It then provides an overview of monetary policy, describing it as measures taken by the central bank to regulate money supply and influence factors like inflation. It outlines the monetary policy tools used by the Philippines' central bank, the Bangko Sentral ng Pilipinas (BSP), including its policy interest rates, reserve requirements, open market operations, and moral suasion. It also discusses the BSP's inflation targeting framework and privatization policies of the Philippine government.
This document discusses monetary policy in India as administered by the Reserve Bank of India (RBI). It provides background on the RBI, including noting that Dr. Raghuram Rajan is the current governor. It defines monetary policy and notes that RBI announces policy twice yearly to regulate price stability. The objectives of monetary policy are listed as economic growth, full employment, credit flow, price stability, and exchange rate stability. Both quantitative and qualitative tools are discussed, including repo and reverse repo rates, open market operations, cash reserve ratio, statutory liquidity ratio, bank rate, moral suasion, direct action, and regulating consumer credit. Current rates are provided.
Monetary policy refers to actions taken by central banks to control money supply and influence interest rates in order to achieve objectives like price stability and economic growth. There are two types: expansionary monetary policy stimulates the economy by increasing money supply and lowering interest rates, while contractionary policy decreases money supply to reduce inflation by making money less accessible. Central banks use instruments like adjusting interest rates, buying and selling government bonds, and changing bank reserve requirements to implement monetary policy and meet its objectives of full employment, economic growth, price stability, and more.
07 August 2013--Understanding the Fed's Latest MovesEconReport
The Federal Reserve Chairman, Ben Bernanke, made some statements on 19 June 2013 that sent shockwaves
throughout the financial markets in the United States and Asia. There is no change in policy. This, Chairman Bernanke,
emphatically stated several times at the 19 June 2013 press conference. So why did the markets react the way they did?
This analysis will assist in understanding why the markets responded in the manner that they did to Chairman Bernanke's
suggestion that the asset-purchasing program will “taper off” in late 2013 or in mid- to late-2014 although this possibility
is clearly stated in the Federal Reserve's Open Market Committee's (FOMC's) 22 May 2013 statement.
The document discusses the concept of monetary policy, which is managed by central banks like the Reserve Bank of India to control money supply and credit in an economy. It aims to influence economic growth and inflation. The key tools of monetary policy include open market operations, adjusting policy interest rates like repo rates, and changing reserve requirements that commercial banks must maintain. Monetary policy can be expansionary to boost the economy or contractionary to curb inflation. It has a limited effect on variables like output and employment in the short-run.
The document discusses monetary policy and its objectives and tools. The objectives of monetary policy are to ensure economic stability, achieve price stability by controlling inflation and deflation, and promote economic growth. The key tools of monetary policy are quantitative measures like open market operations, cash reserve ratio, and discount rate. Qualitative measures include credit rationing, changing lending margins, moral suasion, and direct controls. Monetary policy uses various tools to contract the money supply and credit to control inflation or expand the money supply and credit to control recession.
The document summarizes the key findings and recommendations of the Chakravarty Committee report on monetary policy in India in the 1980s. The committee was formed to address issues with rising inflation driven by high fiscal deficits and government borrowing from the central bank. It found that money supply growth far exceeded GDP growth, leading to high inflation. It recommended reducing money supply growth, adopting monetary targets, and increasing interest rates to market levels to reduce government borrowing and prioritize price stability. However, critics argued its recommendations lacked specifics and the flexibility in targets would undermine monetary discipline.
Monetary policy aims to influence money supply and interest rates to achieve price stability and maximum employment. The document discusses various monetary policy tools like interest rates and their effects on investment, consumption, employment and inflation. It also discusses the role of central banks in implementing monetary policy through tools like adjusting interest rates and money supply. The upcoming monetary policy meeting of the State Bank of Pakistan is expected to maintain current interest rates given recent improvements in trade deficit and currency stability, though a rate hike is still possible due to high inflation.
- Global bond markets sold off due to improved economic outlook, rising commodity prices, and higher inflation expectations. Bond yields increased globally, led by the long end of the yield curve.
- In India, bond yields rose following the budget which projected higher fiscal deficits than expected. The 10-year benchmark yield rose 17bps despite central bank intervention.
- Recent data shows a recovery in India's economy in the third quarter, with GDP growth of 0.4% and a pickup in manufacturing and services. Inflation fell to 4.06% in January on lower food prices.
Report on Monetary Policies & its transmission mechanismGopal Kumar
The document is a report on monetary policies and transmission mechanisms in India. It defines monetary policy and its objectives set by the Reserve Bank of India. It describes the various monetary policy instruments used by RBI including open market operations, cash reserve ratio, statutory liquidity ratio, and repo and reverse repo rates. It also outlines the monetary transmission mechanism and key channels such as interest rates, credit, asset prices and exchange rates. It discusses issues that can affect the transmission of monetary policy.
- 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.
In CBO’s projections, economic output is expected to grow by 2.3 percent in 2019, supporting strong labor market conditions that feature low unemployment and rising wages. After 2019, economic growth averages 1.8 percent per year, which is less than the historical average.
CBO estimates that the federal budget deficit for 2019 will be $960 billion. Under current law, budget deficits are projected to average $1.2 trillion a year between 2020 and 2029, boosting debt held by the public to 95 percent of GDP in that year—its highest level since just after World War II.
Monetary policy is the policy adopted by the authority of a nation to control either the interest rate payable for very short term borrowings or the money supply, often as an attempt to reduce inflation or the interest rate, to ensure price stability and general trust of the value and stability of the nation's currency for every financial year based on the quarter, the new policy is made and executed for the growth of the economy. The RBI carries out the monetary policy through open market tasks, bank rate strategy, reserve system, credit control strategy, moral influence and through numerous different instruments.
We like rates structurally, both on adequate valuations (breakeven levels: 5y, 3.55% (2.98%); and 10y, 3.36% (3.09%)) and as a hedge for risk assets, taking the under on the (largely) priced base case of a smooth 3 year (2018-2020) rate hiking cycle. Based on our macro risk-neutral model and pure expectations, we see 1.80-2.50% and 2.10-2.30% on the UST 5 and 10. Our view is to stay long on the UST 5-10y, prefer 7y; tactical view suggests range trading, 10T around 2.80-3.20%, into 1H19 (Fed hikes by 75bps to 2.75-3.00% by 1H19; anchor extent of rates rally; near term upside risks of a Republican sweep of the mid-terms, providing the President and the Republican Party with another opportunity to pursue even looser (pro-wealth) fiscal policy.
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.
ICICI Prudential Mutual Fund | Impact analysis iciciprumf
Going forward, RBI may have to do a fine balancing act. On one hand, support for growth trajectory is needed due to the second wave and on the other hand, RBI would need to keep an eye on upside risk to inflation.
Investing in a Rising Rate Environment - Dec. 2011RobertWBaird
- Rising interest rates can negatively impact bond prices in the short-term but a focus on total return, which includes interest income, provides a more accurate picture of bond performance over time.
- An analysis of periods from 1994-2006 when the Federal Reserve raised rates found that while bond prices fell in the majority of months, interest income was positive every month and total returns were positive in 64% of months.
- Diversifying across different types of bonds can help mitigate the effects of rising rates as different bond segments perform variably depending on economic conditions. Professional bond managers employ strategies to offset negative impacts and maximize total returns.
Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to contribute to a sustainable development of society and our environment. We are strongly committed to society as a whole and keen to help bring about a sustainable form of societal development. Our Swedish operations hold an ISO 14001 environmental certification, and environmental work is an integral part of our business activities.
This document contains summaries of several sources that discuss various topics related to non-banking financial companies (NBFCs) in India:
1) J.P. Morgan's risk model changes usually require multiple layers of management approval. Muthoot Finance found that NBFCs need strategies to target the 65% of the rural market.
2) A Crisil report concluded that new RBI regulations will strengthen NBFCs but increased provisions may decrease profits up to 30 basis points.
3) RBI papers concluded minimum net worth for NBFCs should stay at 2 crore rupees and new NBFCs should have over 50 crore in assets. Monetary policy in India responds more
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.
MACROECONOMIC FOCUS AND INDUSTRY ANALYSIS .docxsmile790243
MACROECONOMIC FOCUS AND INDUSTRY ANALYSIS 1
MACROECONOMIC FOCUS AND INDUSTRY ANALYSIS 2
Milestone Two
Macroeconomic Focus and Industry Analysis
NOTE: highlighted any change you made. Know which one is revised. Thanks.
Note: See all highlighted on yellow comments and revised it.THANKS.
Macroeconomic Focus and Industry Analysis
Macroeconomic forecast of the monetary school of thought.
From a monetarist perspective, regulation of the flow and circulation of money is important in determining and influencing preferred economic conditions in the United States. Reducing the circulation of money in the economy has many effects on the macroeconomic environment and determines the activities of other stakeholders in the financial market. From a monetarist school of thought, the government has sole responsibility to both country and citizens in ensuring favorable monetary policies are implemented that are akin to the prevailing economic conditions through the control of inflation and prevention of deflation in the country (Fair, 2011).
Reducing the supply of money in the economy has effects on the macro-economic Cory Kanth:
This point is not clear. It needs clarification in terms of better explanation.
environment as earlier mentioned. Reducing money circulation has both short run and a long run effect that shift practices in the economic environment. For instance, consumer spending is affected by the implementation of monetary policies. When the government implements monetary policies that do not favor money circulation, consumer spending capabilities are significantly reduced (Fair, 2011). The reduction in the spending is due to the reduced flow of money in the financial market which limits the funds accessible to consumers in the market. This policy is usually exercised in a bid to control inflation in the market where prices go up due to increased demand catalyzed by the availability of money in the hands of the spenders.
Reducing the growth of money circulation from a monetary perspective is empirical in determining the cost of labor. When there is a circulation of money in the market, individuals can opt for willing unemployment due to the availability of funds through other sources other than the low paying jobs (Gnimassoun & Mignon, 2015). Further analysis on the effect of reducing money circulation is the government stabilizes the prices of labor meaning little choice is left for personnel who may discriminate employment due to reduced wages or low salaries.
Investment spending is a factor directly affected by the increase in interest rates. This is because investors avoid high lending rates due to high interests that are amassed over operational periods. Moreover, increased lending rates affect investment spending since capital and ...
Monetary policy uses tools like interest rates and money supply to influence economic outcomes like growth, inflation, exchange rates, and unemployment. The objectives of monetary policy are price stability, credit availability, exchange rate stability, full employment, and high economic growth. The tools available to central banks include open market operations, changing reserve requirements, and setting bank interest rates like the discount rate. How monetary policy works is by influencing the cost of borrowing - lower rates encourage more spending, saving, and investment in assets like property and stocks.
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.
The document discusses new techniques in artificial intelligence for analyzing financial markets. It introduces the A.I.4Trading project which uses machine learning and deep learning models to extract patterns from market data and provide forecasts. The Market Clock module uses clustering and classification algorithms to analyze intraday price movements and predict the probability distribution of the market's end-of-day return. By recognizing patterns in historical market trajectories, the models aim to forecast the most probable trajectory of prices for the rest of the trading day.
This document provides an analysis of the September 2017 Btp futures roll and deliverable bonds. It finds that given current yield levels and heterogeneity in the deliverable basket, changes to the futures contract coupon would not significantly impact deliverability option value. While there is theoretically potential for some deliverability around the switch point between bonds, increasing yield volatility to +/-100bps is needed to realize meaningful value. The Btp Jun26 bond, which will fall out of the September basket, faces limited potential to cheapen given it may become a target for central bank purchases. Overall, the analysis does not see major opportunities in the September basket beyond a long position in the Sep28 basis in a bull or very bearish flattening scenario.
The document analyzes potential future purchases of Italian government bonds by the European Central Bank under its Public Sector Purchase Programme (PSPP). It finds that:
1) Modeling future purchases under an objective of either maximizing duration or minimizing variance, the bulk of purchases would be concentrated in the 7-5 year maturity bucket.
2) Incorporating assumptions of future issuance and declining durations, the conclusion remains unchanged - purchases will still focus on the 7-5 year sector.
3) By December 2017, simulated portfolios show purchases distributed across maturities with the overall duration of the portfolio declining over time as shorter-dated bonds mature.
This document analyzes European inflation trends over time using principal component analysis of inflation indexes from various countries. It finds that credit growth, as represented by growth in loans to corporations, correlates strongly with and can explain the long-term trend in inflation. In the short-term, deviations from this trend are explained by economic slack and price indicators like oil and commodity prices. The analysis concludes that inflation in Europe remains heavily dependent on accommodative monetary policy and that some upside is possible in inflation expectations in the near future, but underlying inflation trends remain subdued.
The document discusses bond futures, specifically:
1) Bond futures allow short sellers to deliver any eligible bond, giving them strategic delivery options. This optionality makes bond futures hybrid products.
2) Net basis can approximate the value of delivery options for the cheapest-to-deliver bond, but for other bonds it represents delivery costs plus optionality.
3) At expiration, net basis will be zero for the cheapest-to-deliver bond and positive for other bonds, representing the relative expensiveness of delivering those bonds.
This document provides a summary and analysis of recent updates from the European Central Bank (ECB) regarding their quantitative easing (QE) program and targeted longer-term refinancing operations (TLTRO). It finds that most eurozone countries have already met lending benchmarks to receive TLTRO funds at low rates, suggesting upcoming TLTRO allotments could see high demand. It also notes the ECB may gradually reduce monthly QE purchases and shift more toward supranational agency bonds as some countries approach the 33% issuer limit. Overall trades suggested include long positions in euro swap rates and select sovereign debt markets.
The document summarizes analysis on collective action clauses (Cacs) in European sovereign bonds. It finds that with 33% of debt held by the ECB, the Cac procedure for restructuring is already impaired. It also provides data on Cac holdings and pricing analysis, finding the non-Cac premium moves similarly across markets and is correlated with convexity value. Additional sections summarize the ECB's quantitative easing program, including breakdowns by country of purchases and outstanding debt.
This document discusses negative interest rate policy (NIRP) implemented by several central banks and considers whether further reductions in interest rates could be beneficial. It estimates that the effective lower bound for euro area interest rates is -1.1% to -2.6% depending on banknote denominations. While further rate cuts could boost lending and spending, they also pose risks by squeezing bank profits and disrupting financial markets. The benefits of NIRP are uncertain and depend on how much rates are reduced and whether that leads to increased credit and inflation.
The document discusses challenges facing Europe in 2017, including the lack of a common European safe asset. It proposes some potential solutions to developing a European safe asset, such as using financial engineering to create "Nasbies" or National safe bonds. The document also discusses other European challenges, such as geopolitical issues, declining population growth and economic importance relative to Asia, and the "back to the past" sentiment seen in some recent European elections. It analyzes policies from the ECB, BOJ and potential developments in 2017 that could help address these challenges, including continuing work on banking union, capital markets union, and fiscal policy coordination in Europe.
This document discusses the implementation of the European Central Bank's Public Sector Purchase Programme (PSPP) and its impact on bond markets. Some key points:
- Over €5 trillion in bonds globally are trading at negative yields, with over €9 trillion in G7 countries' bonds at negative rates.
- In the EU, €3.2 trillion or 50% of outstanding bonds are at negative yields. Low yields increase interest expenses for governments but reduce participation in bond markets.
- An increase in issuer limits under PSPP may modestly extend the time until the ECB exhausts its pool of eligible German bonds, while increasing overall portfolio duration and the percentage of government bonds held. This could affect pricing along
Yellen stresses the importance of addressing high prolonged unemployment to prevent it from becoming structural. She judges the strength of the labor market using multiple indicators including the U6 unemployment rate, the gap between actual and estimated NAIRU rates, and measures of job availability and quits. Yellen supports an "optimal control" monetary policy rule that aims to minimize unemployment and inflation gaps, prescribing lower rates when output gaps are wide. She expects the Fed will follow a balanced monetary policy approach once unemployment falls to around 6.5%, likely in 2014-2015.
Seminar: Gender Board Diversity through Ownership NetworksGRAPE
Seminar on gender diversity spillovers through ownership networks at FAME|GRAPE. Presenting novel research. Studies in economics and management using econometrics methods.
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
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"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
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1. THIS DOCUMENT IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements designed
to promote the independence of investment research and is also not subject to any prohibition on dealing ahead of the
dissemination of investment research.
Cristiana Corno
Strategist
Global Markets-Trading
cristiana.corno@bancaimi.com
Data as of 26-Sep-16
GLOBAL STRATEGY
26-Sep-16
Market focus
QQE with yield control
BOJ has introduced a further step in unconventional monetary
policy: yield curve control via long term rate targeting and securities
buying. More precisely, the new framework consists of two major
components:
1. Yield curve control via long term rate targeting.
2. A commitment to inflation overshooting. The CB commits itself to
expand the monetary base (now 80% GDP up to 100% or 100
trillion JPY from current levels) in order to achieve and maintain
an above 2% inflation target.
Long term rate targeting
In history, long rate targeting has been used in war times (Fed
1
) and Latam to foster economic growth and
allow cheap fiscal financing.
More recently, their use as a possible source of additional monetary stimulus, has been discussed and
analyzed by the Fed in 2003.
In that occasion, the debate concluded in favor of QE which, in Fed thinking, would have ensured more
control on the bank’s balance sheet committing the bank to a finite quantity of buying.
Long term rate targeting has seen renewed interest more recently (Geneva report, IMF “Monetary Policy in
the New Normal”) in the debate on monetary policy’s unconventional tools, as a more flexible instrument to
add monetary stimulus, avoiding the distortion and limitation of QE buying.
One of the limit of QE is that it is quantitatively finite due to the dimension of the eligible pool of assets and,
as the market anticipate the limits, it undermines the central banks objectives in a self-fulfilling mechanism.
In the IMF paper “Portfolio rebalancing in Japan: constraints and implications for QE”, the authors calculate
that, taking in account demand for safe assets from banks and institutional investors (insurers and pension
funds), the BOJ, under current policies, would have to taper, starting 2017-2018. In the same paper moving
to interest rate targeting is mentioned as a possible solution out to QE-finity.
In chart below, we show how much the BOJ holds of each subsector and which is the average holding on
outstanding per maturity buckets.
Figure. 1 – BOJ holding along maturities and % of holding on outstanding amount in each maturity
bucket. Source BOJ, Banca IMI
Table. 1 – Non government
1
https://www.federalreserve.gov/monetarypolicy/files/FOMC20030618memo01.pdf
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2 5 7 10 15 20 30 >30
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2 5 7 10 15 20 30 >30
2. 2
THIS DOCUMENT IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements
designed to promote the independence of investment research and is also not subject to any prohibition on dealing ahead
of the dissemination of investment research.
Long rate targeting as a monetary policy instruments: pro and cons
Theoretically, long-term yields reflect the expected future path of short-term interest rates and a time-varying
maturity premium
2
. The arguments that support long rate targeting as an instrument of monetary policy are:
• since the targeted long rate communicates to the markets a path for future interest rates, it reduces the
risk of hitting ZLB, if not there, while enhancing forward guidance with a stronger commitment (use of
balance sheet);
• it shields the economy from unwanted rise in term premiums due to risk aversion or demand-supply
shocks;
• it allows the CB to focus on the relevant rates for spending/investment decision.
Sinthetically, long rate targeting includes the strength of both forward guidance and QE. The downside are:
• the potential risks to CB balance sheet, given unpredictable path of asset purchases necessary to keep the
target (credibility and potential economic losses);
• the loss of CB independence due to fiscal dominance (monetary policy subordinated to cheap financing).
In literature, there are not definitive conclusions on the instrument: the IMF review (2014) concludes that
there are insufficient theoretical or empirical work to conclude that the benefits outweigh the costs and that
the operational hurdles can be overcome.
Fed experience
3
highlights three important issues on long term rate targeting:
1. There is not clear evidence that the government cap is effective in holding down the general yield level.
2. It is important to have an exit strategy to avoid market disruptions.
3. By directly managing the Treasury financing cost, it increases the potential conflicts between CB and fiscal
authorities.
In terms of market implications, long rate targeting is expected to increase in relative the volatility of short-
medium term rates (Woolford
4
comment, 2005). On BOJ announcement rate volatility has, in fact, decreased
overall with 10y maturity underperforming more.
Figure. 2 – 1y forward volatilities for 5y,10y and 20y maturities and fly Source: Bloomberg,
Banca IMI
Rate-targeting and QE differences
Both targeting longer-term rates and quantitative easing involve buying of large quantities of securities; the
first sets a quantity, the other sets a price.
In QE, the CB commits itself in buying a fixed quantity of securities, without determining directly yields.
In rate-targeting, CB specifies the yield it is trying to achieve and the quantity of securities becomes a
consequence of the CB’s credibility and other factors (securities supply and demand).
Relative to QE operations, interest-rate targeting has some positives:
• achieves: greater certainty about the interest rate that will result from the policy, potentially
reducing both the level and volatility of interest rates;
2
Gürkaynak and Wright, 2012.
3
https://www.federalreserve.gov/monetarypolicy/files/FOMC20030618memo01.pdf
4
http://www.columbia.edu/~mw2230/CRcomment-LongTermInstrument.pdf
15
20
25
30
35
40
45
50
55
60
JPNE110 ICPL Curncy JPNE15 ICPL Curncy JPNE120 ICPL Curncy
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
vol 10520 fly
3. 3
THIS DOCUMENT IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements
designed to promote the independence of investment research and is also not subject to any prohibition on dealing ahead
of the dissemination of investment research.
• a well-designed framework has the potential to reduce the magnitude of purchases required to
keep interest rates near desired levels, giving the CB more flexibility and limiting market distortion;
and negatives:
• it generates great uncertainty about the quantity of securities that will be added to the central
bank’s balance sheet, with the consequences in term of credit risk and potential loss in case of
adverse market move;
• it could be interpreted as being fiscal dominance (allowing cheap financing to the Treasury).
Long term targeting design
In the Fed note
5
, discussing long term rate targeting two features are considered in the targeting design
framework: horizon and hardness of target.
Targeting yields at short- and intermediate-term horizons implies a less frequent need to adjust them sizably,
it make the exit strategy easier and gives to the policymakers probably more visibility on the optimal yield
level. On the other side, targeting long term rates provide more stimulus to the economy.
In a “hard” target regime, operations are designed to keep yields continuously at the targeted level, while in
a “soft” target they are adjusted on a periodic basis. The hard line is attractive, because it reduces
uncertainty about yields, but it carries substantial risk as the targeting horizon lengthens: possible large
increase in the size of balance sheet to defend it and significant capital losses for the central bank in the cap
exit.
BOJ “yield curve control”
In its new monetary framework, BOJ has chosen a “long term soft” target, that can be reviewed at each
policy meeting, thereby mitigating the potential risk of disruption in the cap exit. From now on, the outcomes
of next BOJ meeting will be the short and long term rates. Besides, BOJ buying will shape the rest of the
curve according to its view on the optimal interest rate path and forecasted sensitivity of the economy to
each different curve bucket. The introduction of “Yield curve control” is justified in order to avert excessive
flattening and control financial stability (banking and insurance system safeguard), but it has also strong
implication for monetary policy and fiscal policy financing.
• Regarding monetary policy, the new approach gives to the BOJ the ability to design the desired yield
curve, taking in account the economy sensitivity to the different maturity buckets
6
.
• The commitment to the 2% inflation target, the control of long term rates, the fiscal stimulus, all go
in the direction of more coordination, “synergie” between fiscal and monetary policy in a soft form
of “monetary financing”. Long rate targeting happens to be “part 2” of “what tools does the Fed
have left?” in the Bernanke blog, being Part 1 and 3, respectively, Negative Rates and Helicopter
money.
Summarizing, the positive of the new frameworks are:
1. If credible, it will allow BOJ to maintain yield control without the limitation (quantity) and distortion(supply
demand imbalances) of QE and possibly reducing the amount to be purchased and relatively market
distortions.
2. The CB could act on the shape of the curve communicating to the market the exact path of interest rates
3. BOJ will be still be able to ease further monetary policy with further cut in rates, and increasing the pool
of eligible assets.
4. It will provide support to the fiscal stimulus avoiding a sharp increase in rates, if the stimulus has real
effect on the economy.
On the negative side:
5. The framework creates risk in the BOJ balance sheet developments, in case of abrupt increase in yield
level. The risk is reduced by being the long term target “soft”.
6. The market could test the CB on the downside. For what we understand, under long term targeting the
BOJ should sell the bonds, thereby, reducing the monetary base and liquidity of the system (currently
huge). BOJ could as well twist or barbell the purchases (selling the long end to buy shorter term, or
5
https://www.federalreserve.gov/monetarypolicy/files/FOMC20101013memo08.pdf
6
In a recent paper, “The natural yield curve: its concept and measurement” by Kei Imakubo, Haruki Kojima
and Jouchi Nakajima, June 2015, BOJ estimates a natural real yield curve, which can be used as benchmark
for monetary policy.
4. 4
THIS DOCUMENT IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements
designed to promote the independence of investment research and is also not subject to any prohibition on dealing ahead
of the dissemination of investment research.
barbelling long and short maturities to sell 10y to maintain the monetary base unchanged), in order to
maintain the curve shape, but still this will hit the limit of QE buying (issues availability) and the floor of
the deposit rate, ending up with forcing the BOJ to lower further the short term rates.
With this premises, it will be difficult to express a market view on the JPY curve. Curve movements will
probably become more directional. Sub 10y we would expect asset swap steepening in a bull move and the
opposite in the bear move.
BOJ new framework, could be hardly be implemented in Europe, but the ECB postponement of QE process
revisions make us suspect that they may be thinking at something similar. We will wait for next ECB meeting
for eventual hints.
Table. 1 – Non government
5. Disclaimer
This marketing communication has been prepared by the Trading Strategist department and is distributed by Banca IMI, a bank belonging to the
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• constitutes a marketing communication and, as such, it has not been prepared in accordance with the legal requirements designed to
promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of
investment research;
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1. The views expressed on companies mentioned herein accurately reflect independent, fair and balanced personal views;
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Neither the Trading Strategist nor any member of the Trading Strategist’s household has a financial interest in the securities.
Conflicts of interest
Banca IMI S.p.A. and the other companies belonging to Intesa Sanpaolo Banking Group (jointly, the "Intesa Sanpaolo Group") provide all services
in the lending and securities industry, carrying out in particular – through its companies in possession of the necessary authorizations, where
required – investment banking, corporate finance and finance and investment activities – through merchant banking activities and proprietary
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The Intesa Sanpaolo Banking Group is involved in a wide range of commercial and investment banking and other activities (including investment
management, sales and trading of securities related activities) out of which may from time to time arise an interest in the issuers and in the
financial instruments, including related financial instruments, or transactions referred to in this communication. Such interests may include i)
having, at any time, significant directional positions, long or short, trading activity which could be also contrary to the views expressed herein; ii)
holding financial instruments under pledge; iii) trading, on behalf of themselves or of their clients, the financial instruments, including related
financial instruments, or financial instruments whose value is dependent upon, or is linked to, the financial instruments, issuers, parameters or
indices referred to herein; iv) granting loans to companies whose securities are discussed herein; v) holding significant shareholdings and possibly
appointing board members and/or other corporate bodies member, and participating in shareholders’ agreements; vi) providing banking, credit or
other financial services to the issuers of the financial instruments referred to herein, including their controlling companies or other companies
belonging to the issuer’s group. Banca IMI may act in the capacity of sponsor, specialist, listing partner, market maker, corporate broking and/or
liquidity provider or in any other similar capacity with regard to the financial instruments, including related financial instruments, referred to
herein.
In consideration of the above, Banca IMI S.p.A. states that has adopted written guidelines “Modello di Organizzazione, Gestione e Controllo”
pursuant to Legislative Decree June 8, 2001 n. 231 (available at the Intesa Sanpaolo website, webpage
http://www.group.intesasanpaolo.com/scriptIsir0/si09/governance/ita_wp_governance.jsp, along with a summary sheet, webpage
https://www.bancaimi.com/en/bancaimi/chisiamo/documentazione/mifid.) setting forth practices and procedures, in accordance with applicable
regulations by the competent Italian authorities and best international practice, including those known as Chinese Walls, to restrict the flow of
information, namely inside and/or confidential information, to prevent misuse of such information and to prevent any conflicts of interest may
adversely affect the interests of the customer in accordance with current regulations.
Furthermore, in relation to the government securities potentially mentioned within this marketing communication, we disclose that Banca IMI
S.p.A. acts as market maker in the wholesale markets for the government securities of the main European countries and also acts as Government
Bond Specialist, or comparable assignment, for the government securities issued by the Republic of Italy, by the Federal Republic of Germany, by
the Hellenic Republic, by the European Stability Mechanism and by the European Financial Stability Facility.
This communication is for exclusive use by the person to whom has been distributed by Banca IMI and may not be reproduced or redistributed,
directly or indirectly, to any other person or published, fully or partially, for any reason whatsoever, without the prior written consent of Banca IMI.
The copyright and any other intellectual rights on data, information, opinions and estimates referred to herein belong to the Intesa Sanpaolo
Banking Group, unless otherwise stated. Such data, information, opinions and estimates may not be fully or partially distributed or reproduced in
any form, and by any means, without the prior written consent of Banca IMI.
Any recipient of this communication is required to comply with the above requirements.
Document produced on 26 settembre 2016 at 15.13 and disseminated for the first time on 26 settembre 2016 at 15.16