I would agree, although it's v hard to predict. At the zero bound, things get really funky.
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Global Macro Trading Journal
- Thread starter Daal
- Start date
Why do you think it will translate into asset inflation?Quote from dhpar:
sorry but i do not see that. we did not have IOER before 2008 and i don't see why it could not be dropped now.
if dropped it should translate into asset inflation - and actually in inflation of all kinds but isn't it what fed wants?
Quote from dhpar:
banks will have to park money somewhere, i.e. treasuries.
I very much doubt this. USTs should respond immediately to the announcement and reach an equilibrium level where it would be almost equivalent to Fed reserves. This is a fallacy that Scott Sumner seem to be falling to as well.
Its like if MSFT announced they are buying a stock that trades at $50 for $80, the stock would immediately rise to $78 or something even though very little trading might be occurring.
As USTs 'gap up', banks would have little or no incentive to make the switch
Quote from dhpar:
it is a joke i guess: "immediately reach equilibrium"
you know very well that it may take weeks for all cash making it into short term AND longer term treasuries...
Look at the CHF. Huge market that responded immediately. The onus is on you to explain why risk free profits would stay out there for so long
Quote from ralph00:
Can anyone explain to me why flattening the yield curve will help the economy? Has the Fed even tried to explain that or are they doing something just for the sake of doing something?
NGDP = M * V. Fed can boost both by doing these types of stimulus, to the extend that nominal fluctuations in cause real problems(And I believe the 1930's show that pretty clearly) these stimulus measures will dimish the real impact of sticky wages, prices and debt deflation