A Quote by Raghuram Rajan
Monetary policy is like juggling six balls... it is not 'interest rate up, interest rate down.' There is the exchange rate, there are long term yields, there are short term yields, there is credit growth.
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Our tree is actually a tree of the short-term interest rate. The average direction in which the short-term interest rate moves depends on the level of the rate. When the rate is very high, that direction is downward; when the rate is very low, it is upward.
The insurance companies do not refer to the key policy rate when they send their statements. We can only control that rate. Long-term interest rates are determined largely by global financial markets.
When they so-called 'target the interest rate', what they're doing is controlling the money supply via the interest rate. The interest rate is only an intermediary instrument.
The Interest Rate Reduction Act takes a first step toward providing critical stability by eliminating the threat of an immediate interest rate increase, while making clear the need to move toward a long-term solution that serves the best interests of taxpayers and borrowers.
If a country is an attractive place for foreigners to invest their funds, then that country will have a relatively high exchange rate. If it's an unattractive place, it will have a relatively low exchange rate. Those are the fundamentals that determine the exchange rate in a floating exchange rate system.
A higher IOER rate encourages banks to raise the interest rates they charge, putting upward pressure on market interest rates regardless of the level of reserves in the banking sector. While adjusting the IOER rate is an effective way to move market interest rates when reserves are plentiful, federal funds have generally traded below this rate.
First, pay off your high-interest-rate debt. If you have student loan debt - that's low interest rate; that has a tax benefit - you can leave that out. A mortgage can be an OK one. Credit card debt is poison. That needs to be paid off right away.
The U.S. berates China for its exchange rate policy, which Washington doesn't like. But one-sided pressure on China to change its exchange rate is misplaced.
Monetary policy transmission encompasses the whole continuum of interest rates; of course, the central bank only determines the overnight policy rate.
Paying interest on reserve balances enables the Fed to break the strong link between the quantity of reserves and the level of the federal funds rate and, in turn, allows the Federal Reserve to control short-term interest rates when reserves are plentiful.
Profits in business always depend on the rate of interest: the higher the interest, the higher the rate of profit required.
The one instrument that has relative political autonomy is monetary policy. Central banks do not need to go to Congress to get approval for an interest rate hike.
This bill is the legislative equivalent of crack. It yields a short-term high but does long-term damage to the system and it's expensive to boot.
The IMF insisted that both Russia and Brazil maintain their currency at over-valued levels. Who are you protecting when you try to maintain that exchange rate by having high interest rates? You're protecting domestic and foreign firms that have gambled on the exchange rate. And who is paying the price? The small businesses that did not gamble [and no longer can afford loans], the workers who are going to be put out of jobs.
The lesson for Asia is; if you have a central bank, have a floating exchange rate; if you want to have a fixed exchange rate, abolish your central bank and adopt a currency board instead. Either extreme; a fixed exchange rate through a currency board, but no central bank, or a central bank plus truly floating exchange rates; either of those is a tenable arrangement. But a pegged exchange rate with a central bank is a recipe for trouble.
Let's start with the euro. What on earth were we thinking? How could anyone with the faintest grasp of economics have believed it was anything other than sheer insanity to yoke together diverse national economies such as Greece, Ireland, Germany and Finland under a single exchange rate and a single interest rate?
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