tag:blogger.com,1999:blog-6638187113544241481.post3057248654333249623..comments2024-02-27T01:53:25.186-05:00Comments on Synthenomics: What Would Stein Do? - Monetary Policy and Financial RegulationYichuan Wanghttp://www.blogger.com/profile/15398092824604478764noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-6638187113544241481.post-42039323846688104322013-02-15T19:16:53.342-05:002013-02-15T19:16:53.342-05:00Bill and Scott,
I think I agree that it's sti...Bill and Scott,<br /><br />I think I agree that it's still an open issue how one would make such a reserves system workable. However, the thrust of the post was that, if so desired, there are ways to use monetary policy in conjunction with regulatory policy in order to enhance the regulatory regime.<br /><br />And Saturos,<br /><br />Nick brings up a good point about regimes, and it's certainly nothing I disagree with, but I think that it still leaves open the possibility that monetary policy, in order to minimize the chance AD will collapse, should watch out for financial stability indicators.Yichuan Wanghttps://www.blogger.com/profile/15398092824604478764noreply@blogger.comtag:blogger.com,1999:blog-6638187113544241481.post-71942789702065019012013-02-15T04:31:03.047-05:002013-02-15T04:31:03.047-05:00Yichuan, I don't think you've fully apprec...Yichuan, I don't think you've fully appreciated the wrongheadedness of M.C.K.'s piece, see here: http://worthwhile.typepad.com/worthwhile_canadian_initi/2013/02/a-monetary-policy-target-can-only-be-defeated-by-a-better-monetary-policy-target.html#moreSaturoshttps://www.blogger.com/profile/01914831276101897944noreply@blogger.comtag:blogger.com,1999:blog-6638187113544241481.post-85200733179871163652013-02-12T09:31:04.462-05:002013-02-12T09:31:04.462-05:00Scott Sumner responds:
"I see that proposal ...Scott Sumner responds:<br /><br />"I see that proposal as more "regulatory" than 'monetary policy.' How would it control credit creation from non-banks, which don't need to hold reserves?"<br /><br />I will get back to this issue shortly.Yichuan Wanghttps://www.blogger.com/profile/15398092824604478764noreply@blogger.comtag:blogger.com,1999:blog-6638187113544241481.post-4733878887951935232013-02-12T07:10:10.815-05:002013-02-12T07:10:10.815-05:00A bit convoluted.
The proposal comes down to exte...A bit convoluted.<br /><br />The proposal comes down to extending reserve requirements to all short term debt.<br /><br />In the last decade, in the U.S., reserve requirements became a dead letter. They were only required for checkable deposits, and sweep accounts could be managed to reduce reserve requirements to whatever banks thought it useful to hold.<br /><br />The entire shadow banking system was based upon liabilities that were not fully checkable, if checkable at all, but which were very short, often overnight. <br /><br />Impose reserve requirements on all of them, and constantly keep up with new types and require reserves on them too. <br /><br />The interest rates paid on checkable deposits and all of the alternatives, would be lower. Investors would hold less of them. They might consume a bit more, but they would also hold more stocks and longer term bonds.<br /><br />I don't agree with the policy and instead favor abolishing reserve requirements. I don't favor using interest on reserves as a policy tool but rather favor pegging it a bit below the interest rate on other short and safe assets.<br /><br />And having the central bank vary reserve requirements and the interest rate on reserves so that it imposes a discretionary tax on banks is inappropriate.<br /><br />It would be a bit like having the IRS adjust income tax rates as it sees fit.<br /><br />Bill Woolseyhttps://www.blogger.com/profile/06330232724290161369noreply@blogger.com