Where does the money go? Monetary policy, central banks and... - - PowerPoint PPT Presentation

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Where does the money go? Monetary policy, central banks and... - - PowerPoint PPT Presentation

Nov 11, 2022 446 likes •645 views

Where does the money go? Monetary policy, central banks and... ideology Jens van t Klooster (KU Leuven and University of Amsterdam) Talk What is monetary policy? What happened after 2008? What is the alternative? Big question:

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Where does the money go? Monetary policy, central banks and... ideology

Jens van ‘t Klooster (KU Leuven and University of Amsterdam)

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Talk

  • What is monetary policy?
  • What happened after 2008?
  • What is the alternative?

Big question: Where does the money go?

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What is monetary policy?

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  • 1. Money as a unit of account (€,

$ etc)

  • 2. Money as a means of payment
  • Public money (Cash, central

bank deposits)

  • Private credit money (Bank

deposits, etc)

What is money?

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Private credit money Circulated by banks guided by profit motive Public money Circulated by central banks as a part of economic policy -> public control

Public or private?

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Independent central bank

  • 1 Goal: Price stability
  • 1 Instrument: Interest

rate to steer volume of private credit money

  • Transmission via banks

Monetary policy since the 1980s

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Where does the money go?

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Monetary policy after 2008

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100 200 300 400 500 600 700 800 900 1000 2000-12 2002-02 2003-04 2004-06 2005-08 2006-10 2007-12 2009-02 2010-04 2011-06 2012-08 2013-10 2014-12 2016-02 2017-04 2018-06 2019-08 Foreign currency investments Conventional monetary policy USD Conventional monetary policy CFH Outright purchases CFH Precious metals Other 0.00 500.00 1,000.00 1,500.00 2,000.00 2,500.00 3,000.00 3,500.00 4,000.00 4,500.00 5,000.00 Securities Held Outright Conventional credit to banks Support for Specific Institutions Other

Exploding central bank balance sheets

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 Year200020022004200620082010201220142016 Securities held outright Conventional monetary policy Foreign currency reserves Precious metals Other

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Where does the money go?

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Purchasing securities from

  • Firms
  • Governments
  • Etc

Objectives

  • Price stability
  • Supporting specific markets
  • Supporting government finance
  • Profit

Unconventional monetary policy

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Central banks follow rather than shape the market For example, they

  • Buy from a whole index (S&P 500;

Nikkei 225)

  • Buy all corporate bonds in the market
  • Government bond purchases in

accordance with strict ECB capital key

Market neutrality

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ECB CSPP programme

(Matikainen, Campiglio and Zenghelis 2017)

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Bank of England Corporate Bond Purchases

(Matikainen, Campiglio and Zenghelis 2017)

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ECB announces that it will revise “self- imposed limits” if they “hamper action that the ECB is required to take in

  • rder to fulfil its

mandate”

Pandemic Emergency Purchase Programme

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And now?

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Democratising central banks

Today:

  • Independence
  • Limited coordination with

governments Future:

  • Democratic central banking
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