Government and central bank coordination in a low inflation world

In my previous posts on the liquidity trap and about US Treasury bond purchases I have mentioned that central banks and governments should coordinate their policies as a part of unconventional monetary policy when the interest rates are near the zero lower bound and inflation is persistently low.

However, there are costs and benefits associated with any coordination game. The benchmark coordination model and the restricted version of it are well described in English, Erceg, Lopez-Salido 2017 Read more

Why are global interest rates falling?

Over 2019, interest rates for a variety of fixed terms have been declining – a topic that is likely to be front and centre at Jackson Hole over the coming days.  The weird behaviour of interest rates is something that is causing some big name economists to rethink monetary policy – such as Larry Summers thread here:

However, all I’d like to do here is talk about one of the reasons why interest rates have taken another down step in the past month or so that sounds like it has gone under the radar – poor coordination between the US Treasury and US Fed regarding cash reserves.

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Liquidity traps and unconventional monetary policy

With all this talk about a zero lower bound and unconventional monetary policy I was keen to refresh myself on “liquidity traps” – as I remember people chatting away about these when I was at university.  So what is a liquidity trap, how does it refer to what is going on now, and how can I think about monetary policy when we are in that situation?

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Forward guidance and unconventional monetary policy in NZ?

Forward guidance and unconventional monetary policy

I recently noticed that swap rates purchases were discussed as an unconventional monetary policy tool are discussed in Reserve Bank’s bulletin “Aspects of implementing unconventional monetary policy in New Zealand”.

Namely, they state:

Purchasing interest rate swaps could be a way to signal that the Reserve

Bank expects to keep the OCR low for a prolonged period. Swap rates

comprise the expectations of future policy rates, the term risk premium,

and margin for bank credit risk.”

So why would we want to keep OCR persistently low in long-term? Let’s have a closer look at this.

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Upcoming blog changes

Hi everyone.  You may have noticed a flurry of activity in the blog over the last two weeks – this is because I moved two months of planned activity forward so it would be finished by the end of September.

I am going to have to leave the blog for a while in order to focus my attention on other things from today – so for the foreseeable future I will not be writing or commenting here.

However, some students at Victoria University of Wellington have stated that they are keen to set up an Economic Club at Victoria.  As part of this some students are likely to put up posts here – giving the blog a fresh start with some new, more novel, voices.  Once the club is set up there will likely be a post here – you don’t have to be a student to join, and I hear they are looking at setting up monthly presentations from economists on a range of topical issues.

I have had a lot of fun writing here again, and I’m sure that one day I’ll have something to say.  But I like the idea that some Young (Economics) Turks will turn up to disrupt economic thinking on this site – and hopefully help us all think a bit more critically about economics ideas we’ve taken as given.

Good tweet on narratives and morality

Make of this what you will.  I think reading it as Smith underplaying morality is unfair – but reading it as economic language/narratives being used to underplay important moral arguments that may be necessary for important coordination games is fair.

When I was recently asked who my favourite economist was I named my partner, but pointed out Tirole was a close second.  I also discovered my third fav, Dixon, is on twitter.  Both Tirole and Dixon use standard economics models to explain things we observe while focusing on the types of assumptions we make and their credibility – they use models for clarity of exposition, and I love it.