Central bank

inconvenience which causes the high US Dollar Let's imagine a currency which has a great economy behind it, the economy is doing well, the unemployment rate is at the 16-year low level, the local stock market is soaring to record highs and the central bank has hiked the interest rates thrice during last 10 months. It seems great, and it makes us believe that this currency would surge as long as there is not any great depression. At first glance, it is rather unbelievable that during the…

Meanwhile, in recent weeks, it has become increasingly evident that Fed Chair Yellen is keen to avoid her legacy being judged as a disappointment via her inability to raise the federal funds rate. She has duly taken note of the failures of other central banks to raise their policy rates away from zero. As recently as last December, Fed Chair Yellen was confident the federal funds rate could be raised without causing…

1.3 The impact of macroeconomic releases on exchange rates Economic releases have an important role in the foreign exchange markets. Indeed, macro announcements produce effects on both returns and volatility. Neely and Dey (2010) show that researchers have long studied the reaction of foreign exchange returns to macroeconomic announcements and by doing so, they are now able to infer how markets react to news and how order flow helps impound public and private information into prices. Also,…

Milton Friedman argues that the correlation between general price level and money supply is captured using the economic equation of exchange. MV=PY where Money supply/Quantity of money. On the other hand, V=Velocity of money circulation, while P and Y represent General Price and Real national income respectively. The according to Milton Friedman, the equation means that the total value of the quantity of money multiplied by velocity equals the money value acquired at the output. Regarding the…

monetary authorities can only fix the interest rate and unemployment for short period of time in order to influence the financial condition that will increase investmet and household spending in an economy. Mahadeva and Sterne (2000) said that the “central bank sets the interest rate for short term profit and establish a relationship between unemployment and interest rate to influence financial condition, in turn to affect the aggregate demand.” In addition, if the monetary policy is not…

The Money Multiplier is the mathematical expression that shows the relationship between the monetary base of an economy and the money supply. Usually, it describes the increase of money in circulation created by banks (Blanchard, 2006). On the other hand, the Income-Expenditure Multiplier is the ratio of change in aggregate production to an autonomous change in total expenditure (Blanchard, 2006). b) Interest rate and the exchange rate The interest rates are the…

The results we get from macroeconomic tools are bound to make errors. These errors can sometimes be minimal or they can be drastic. Some of the tools used in macroeconomics are GDP (gross domestic product), Stock market, unemployment rate and money supply changes. These are the main and most commonly used tools when collecting results to predict economic realities. These tools can be challenged and be subject to error as a result of their flaws. There are many reasons how these tools can cause…

their hands, then why are they failing to control it? John Taylor designed his rule in order to forecast the federal funds rate, which he believes gives a more precise estimation on what the Federal Funds Rate, should be, by suggesting how the central bank should adjust interest rates…

foreign exchange. The wealth effect is affected because the supply in demand increases which means the people are spending more money in the ecomony. The interest rates are lowered and people are saving more money and also borrowing more money from banks to stimulate an investiment. The foreign exchange rate is affected because of the rapid increase in the eceomny and more people will want to convert to the Amercian dollar becasue it will appear more attractive and inreturn more Amercin goods…

Introduction: The study of macro economics entails the behaviour of modern economy as a complete system. The following paper centers specifically on the money theory postulated by Keynes. We focus on the flaws in the classical money theory and then move on to explain the Keynes money model, then work on the criticisms on it. Since it is believed in the 1960's 70's and even now that "Never trust any theory of money older than thirty years" The Classical Theory: The fundamental principle of…