{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

session10 - Session 10 Interest Rates Policy Interest Rates...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
Session 10 Interest Rates & Policy
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
2 Interest Rates & Banks profits balance sheet Direct liquidity preference credit demand default probabilities Indirect
Background image of page 2
3 Interest Rate Drivers Loanable funds Liquidity preference Official policy income wealth risks Bond market driven? Money market driven? Policy driven? expectations confidence public borrowing
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
4 Economic Management Central banks Nominal interest rate Monetary policy Governments Real interest rate Fiscal policy Governments Real interest rate Supply- side policy Categories are not mutually exclusive!
Background image of page 4
5 Bond Market Focus How does money supply increase? Rise in... D S Price Yield Risk Liquidity Expected yields Expected inflation Profitability Government deficits Money supply (impact) ? ?
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
6 Monetary Focus Downward pressures on yields from an excess demand for bonds can also be analysed from a the perspective of an excess supply of money 𝑊 = 𝑀 + 𝐵 𝑀 𝑑 + 𝐵 𝑑 = 𝑀 ? + 𝐵 ? 𝐵 𝑑 > 𝐵 ? implies 𝑀 ? > 𝑀 𝑑
Background image of page 6
7 Central Bank Policy inflation as primary focus controlling money supply controlling interest rates Strategy operational procedures open market operations discount rate required reserves Tactics
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
8 Interest Rates & Inflation Nominal interest rates Inflation performance Central bank policy Source: Global Financial Data 0 2 4 6 8 10 12 14 16 55 60 65 70 75 80 85 90 95 00 05 10 % US 3mth T Bill rate US CPI inflation
Background image of page 8
9 Inflation Targets “Optimal” inflation Explicit or implicit? Specific price index Asset prices Flexibility Time horizon Credibility & consistency
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Money causing inflation or vice versa?
Background image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}