By Jagjit S. Chadha, Sean Holly
A few of the assumptions that underpin mainstream macroeconomic versions were challenged as a result of worrying occasions of the hot monetary difficulty. hence, until eventually lately, it was once largely agreed that even supposing the inventory of cash had a job to play, in perform it can be neglected so long as we used temporary nominal rates of interest because the tool of coverage simply because funds and different credits markets may transparent on the given coverage expense. although, very early on within the monetary predicament rates of interest successfully hit 0 percentage and so valuable banks needed to inn to a unconditionally new set of principally untested tools to revive order, together with quantitative easing and the acquisition of poisonous monetary resources. This e-book brings jointly contributions from economists operating in academia, monetary markets and primary banks to evaluate the effectiveness of those coverage tools and discover what classes have up to now been discovered.
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Additional info for Interest Rates, Prices and Liquidity: Lessons from the Financial Crisis
In Chapter 5, Richard Harrison considers a simple modiﬁcation of the NK framework by allowing imperfectly substitutable assets. The model posits a ﬁnancial intermediary that borrows from the government at both long and short maturities and makes one-period loans to households. Portfolio adjustment costs are introduced into the proﬁt functions of ﬁnancial intermediaries so that the larger their holdings of short-term bonds, the more they value long-term bonds. This assumption is motivated by the notion that agents are more willing to hold less liquid assets if they have ample holdings of liquid assets.
Stevens, I. and Tong, M. (2010) The ﬁnancial market impact of quantitative easing, Bank of England Working Paper No. 393. , King, R. G. and Wolman, A. L. (2003) Optimal monetary policy, Review of Economic Studies, 70(4), 825–60. King, M. (2010) Banking – from Bagehot to Basel, and back again, Speech at the Second Bagehot Lecture, Buttonwood Gathering, New York, 25 October. (2002) No money, no inﬂation – the role of money in the economy, Bank of England Quarterly Bulletin, Summer. Kiyotaki, N.
Although there is an emerging literature that responds to these shortcomings, it is important – for both the theory and practice of monetary policy – that this continues. Dale’s estimate of the impact of QE was that the £200 billion of purchases of bonds from non-bank ﬁnancial intermediaries had reduced medium-term bond yields by 100bp. Mike Wickens, in Chapter 10, challenges the perception that the ﬁnancial crisis was due to ﬂawed macroeconomic and ﬁnance theory. Much of this is media criticism, he argues, but written by academics.