Economics

President Trump's plan to install a "Shadow Chair" months before Jerome Powell's term ends will definitely reshape US monetary policy — but it could face a surprising challenge from Powell himself.

The Fed has changed it interest rate policy regime since 2008, from the so-called Corridor system, to the Floor system it is using right now. What is the different?

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 faster the credit growth, the worse it is for real growth (output per worker). This is what Stephen G. Cecchetti and Enisse Kharroubi want to explain in their NBER working paper "Why Does Credit Growth Crowd Out Real Economic Growth?"

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

HKD tends to be on the strong side (closer to HKD 7.75 per USD) when the interest rate differential is positive (HIBOR > LIBOR).

The honorable guest for this installment is Joseph E. Gagnon, senior fellow at Peterson Institute for International Economics (PIIE). We discussed one of his latest research paper "Unconventional Monetary and Exchange Rate Policies" and the new book he coauthored with C. Fred Bergsten, "Currency Conflict and Trade Policy: A New Strategy for the United States". Gagnon also shared his view on the very popular "Global Financial Cycle" ideas.

If you think the interest rate gap between Hong Kong and US is a market phenomenon, think again. HK Monetary Authority has a much bigger role than you think

A careful study of Hong Kong's currency peg that explain why the current low-interest rate environment can be interpreted as a result of the Hong Kong Monetary Authority's policy choice.

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.