Monday, November 30, 2020

The Rise of Non-Bank US Dollar Credit Continues

The latest BIS global liquidity indicators showed that the share of Non-bank USD denominated credit continued its rising trend.

What is Payment on Reserves Process?

The payment on reserve process proposed by Robert Hall and Ricardo Reis is a way of remunerating reserves which would give the central bank better control over the price level.The basic intuition is that...

#WITGT21 Paragraph of the Day 

By Simon Wren-Lewis:What is hardly ever said, so I make no apologies for doing so once more, is that macroeconomic theory has in some ways ‘had a good crisis’. Basic Keynesian macroeconomic theory says...

Macroprudential Policy – how does it differ from rate hikes?

Macroprudential policies, it is argued, are more targeted and can complement central bank’s use of interest rate policy.

Interview with Paul Romer on large scale Covid testing – the transcript

This is the edited transcript of our interview with Paul Romer, on why the US urgently to scale up testing for Covid-19, why he thinks the covid-crisis amounts an intellectual failure, why this economic crisis is not as bad the Great Depression, what economics can do more, and what economists can learn from the crisis.

The sovereign-bank “doom loop”

Since the Euro crisis, investors and policymakers are well aware of the so-called "doom loop" between the banking system and the sovereign. That is, a crisis originating in the banking system (sovereign) will weaken the sovereign (banking system), which in turn will worsen the banking (sovereign) crisis itself.In a recent ECB discussion Paper "Managing the sovereign-bank nexus", the 7 economists - Giovanni Dell’Ariccia, Caio Ferreira, Nigel Jenkinson, Luc Laeven, Alberto Martin, Camelia Minoiu, and Alexander Popov - coauthored the paper suggested that the banks and sovereigns are linked by three interacting channels:

The repo spike is not liquidity crisis; it is a crisis for Fed’s floor...

The floor system needs a cap on top of it. The sooner the Fed realizes it, the better they will be prepared for the coming financial turmoil.

What is the Saturated Level of Reserves?

The Saturated Level of Reserves or efficient level of reserves, is the point which the opportunity cost for banks to hold reserves disappears, and became indifferent towards holding more reserves. The reserve demand curve beyond this point becomes close to horizontal.

Bernanke on Trump’s Fiscal Policy 

Ben Bernanke has a new blog post on Brookings. The focus of the post is to explain "the large difference between the reactions of the Fed and the markets to the change in fiscal prospects since the election"