tag:blogger.com,1999:blog-3393033712226955105.post7300657970817242503..comments2023-06-18T08:40:47.757-07:00Comments on Econ Trash: Nick Rowe's example from 'The sense in which the stock of money is "supply-determined"'Tom Brownhttp://www.blogger.com/profile/17654184190478330946noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-3393033712226955105.post-91066637434734439662014-03-22T09:37:46.546-07:002014-03-22T09:37:46.546-07:00Sure, there are two alternative approaches. But Ni...Sure, there are two alternative approaches. But Nick does seem to be arguing that the interest rate is exogenously fixed, which is closer to RBC's approach than the Fed's. <br /><br />Hah - yes, I've seen Scott's post (and commented!). Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-3393033712226955105.post-22632038484086372592014-03-22T09:31:17.659-07:002014-03-22T09:31:17.659-07:00This comment has been removed by the author.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-3393033712226955105.post-4964613583038388312014-03-22T07:29:48.381-07:002014-03-22T07:29:48.381-07:00Hi Frances, in response to your first point 1.) .....Hi Frances, in response to your first point 1.) ...:D<br /><br />I see your point, however I think in this case the reason has more to do with how Nick set the problem up: There's no other banks other than the CB. It could choose either to fix the interest rate and let the stock of money be endogenous, or it could exogenously fix the quantity of money (Nick explicitly states in several posts that the CB can always "force" as much money as it wants into existence through purchases... and loans are a purchase like any other... but if not through loans then through buying other assets), and let the rate of interest vary endogenously.<br /><br />Responding to your second 1)<br />I'm not sure. All I'm going off is his statement that lower interest rates results in more lending. Thus I drew a downward sloping curve. Interesting about private banks... I didn't even think of that.<br /><br />Thanks for stopping by to comment! It seems Scott has put up a new post today with a subject partly inspired by your comments (amongst others) yesterday. :DTom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-3393033712226955105.post-84039491710032029222014-03-22T06:50:15.492-07:002014-03-22T06:50:15.492-07:00Hi Tom.
Two comments:
1) The difference between ...Hi Tom.<br /><br />Two comments:<br /><br />1) The difference between Nick's explanation and Scott's is at least partly explained by their different nationalities!. Nick assumes that the central bank sets the interest rate. Scott assumes that the central bank determines the quantity of reserves. These assumptions reflect the different models used by their respective central banks. Fed controls the quantity of reserves with OMOs in order to target a desired Fed Funds rate (or rather, it used to - in these days of excess reserves, it controls the IOR rate, not the quantity of reserves). Bank of Canada (like the BoE) explicitly sets the interest rate on reserves and uses OMOs to maintain market rates on substitutes broadly in line with that rate. <br /><br />1) I wonder how much of this is signalling? Cutting the interest rate is a signal to the private sector that more money will be made available for lending - in this model, anyway (though in a model with private banks, cutting interest rates could have the opposite effect). Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.com