Recent Posts
-
Quantitative Easing and the Yield Curve
Under normal conditions, central banks conduct monetary policy by adjusting a short-term policy rate. When that rate approaches its effective lower bound, however, there is little room left for conventional rate cuts. Quantitative easing (QE) offers another way to loosen monetary conditions. The central bank…
-
Shorting the Bank of England
In October 1990, Britain entered the European Exchange Rate Mechanism, or ERM, which required participating countries to keep their currencies within agreed bands. The pound entered at a central rate of 2.95 Deutsche marks and was not supposed to fall below approximately 2.78 marks. If…
-
The Dollar Smile Theory
The dollar smile theory, commonly associated with economist Stephen Jen, explains why the US dollar can strengthen under two very different sets of economic conditions. At one extreme, the dollar rises when the United States substantially outperforms the rest of the world. At the other,…
-
Channels of Monetary Policy Transmission
A central bank directly controls only a narrow set of financial conditions, most importantly a short-term policy interest rate. Its ultimate objectives, however, usually concern broader outcomes such as inflation, employment, and economic growth. Monetary policy transmission describes the process through which a change in…
-
Fyi
The kimchi fried rice at Yale is not kimchi fried rice. It’s just kimchi on top of fried rice. There’s a difference. Please fry them together.
-
The Bank–Sovereign Doom Loop
Banks and governments are closely connected. Banks often hold large quantities of their own government’s bonds because these securities are liquid, can be used as collateral, and are generally treated favorably under financial regulation. Governments, in turn, rely on banks to purchase public debt and…
