tag:blogger.com,1999:blog-6704573462403312459.post825329828478234970..comments2024-03-29T02:53:03.321-04:00Comments on Moneyness: Frozen deposits as a Federal Reserve policy tool?JP Koninghttp://www.blogger.com/profile/02559687323828006535noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-6704573462403312459.post-11604157447448171772013-10-19T02:29:00.454-04:002013-10-19T02:29:00.454-04:00The provide of forex wouldn't actually be fixe...The provide of forex wouldn't actually be fixed, but extra forex would be marketed at public auction. I think you could call this "banning cash", but it's really changing financial institution notices into wearer ties,<br /><a href="http://www.vipmmobank.com/Final-Fantasy-XIV.Gold" rel="nofollow">FFXIV Gil</a><br /><a href="http://www.vipmmobank.com/Final-Fantasy-XIV.CDKey" rel="nofollow">FFXIV CD Key</a>FFXIV Gil For Salehttp://www.vipmmobank.com/noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-72465171841036148652013-04-22T17:26:53.564-04:002013-04-22T17:26:53.564-04:00Note to self... reading back on this, I don't ...Note to self... reading back on this, I don't think freezing deposits necessarily evades the ZLB. As the threat of freezing increases (and keeping IOR fixed at 0.25%) at some point banks will prefer 0% yielding cash to 0.25% reserves, despite the superior yield on reserves. All deposits will be at some point converted into cash since the latter isn't subject to immobilization.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-67602014745285704582013-02-19T13:21:02.993-05:002013-02-19T13:21:02.993-05:00this is quickly becoming my favorite blog... on th...this is quickly becoming my favorite blog... on the Iran tightening/loosening thing, doesn't it matter most from reserve currency status vs. pegged currency status of Iran? we are creating inflation there b/c of lack of dollars for USD based goods on a global scale, --> rial constrained weaker usd stronger --> inflation. can that work here? my suspicion is no, degradation of liquidity should create a demand elsewhere i think, the question where? and since there isn't a natural need for an external currency i also think it may actually be deflationary domestically.cidielhttps://www.blogger.com/profile/16087543940772252902noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-1708724429232354762013-02-19T00:12:15.520-05:002013-02-19T00:12:15.520-05:00Diego, I don't think random freezing of Federa...Diego, I don't think random freezing of Federal Reserve deposits requires currency withdrawal limits. The freezes would only be temporary, after all, and would only apply to a portion of total Fed deposits.<br /><br />But yes, the last thing one wants is an Argentinean situation. <br /><br />I remember reading that when the corralito happened, people escaped it by purchasing dual-listed stocks. The above idea strikes me as having some similarities. Freezing Fed deposits encourages banks to move into other liquid assets like stocks, thereby bidding down the price of Fed money.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-62123738949203237472013-02-18T10:28:18.624-05:002013-02-18T10:28:18.624-05:00Thanks Nick,
That's a good way of putting it...Thanks Nick, <br /><br />That's a good way of putting it. In this post I assume a demand for liquidity-in-general which presupposes high elasticity and substitutability among liquid assets. Just choose whichever form of liquidity is the cheapest. So any decline in the mpg, or effectiveness, of Fed liquidity causes a decrease in demand for deposits. Something like that. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-72797219815251488022013-02-17T10:03:55.268-05:002013-02-17T10:03:55.268-05:00Hi JP (always nice to meet a fellow JP)...
I orig...Hi JP (always nice to meet a fellow JP)...<br /><br />I originally wrote that the Treasury loosens Iranian monetary policy by freezing Iranian deposits, but for some reason the analogy doesn't translate. It's the exact opposite. Still trying to figure out why. <br /><br />....<br /><br />More comments later from me. Am on holiday till Monday evening.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-13979611266387375822013-02-17T09:54:36.694-05:002013-02-17T09:54:36.694-05:00"Assume a starting point of IOR=FF. If reserv..."Assume a starting point of IOR=FF. If reserves are somehow penalized, then the Fed will have to raise IOR to maintain a constant FF. With IOR>FF, banks will be happy to hold the penalized reserves."<br /><br />I'm imagining excess deposits and a very tight corridor. Say IOR is .25% while banks can borrow at the primary credit rate of 0.3%. What ever happens inbetween isn't the CB's concern. It keeps the corridor fixed and only freezes or unfreezes deposits.<br /><br />"They don't have a choice. They are obligated to convert if their customers demand currency, which they will if FF is much below 0%."<br /><br />The central bank keeps the channel at 0.25-0.35%. If it freezes, the total return on deposits declines while the interest portion of the return stays fixed. I'm not sure why bank customers would demand cash if interest rates stay fixed. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-30857964996524770062013-02-16T17:21:15.417-05:002013-02-16T17:21:15.417-05:00JP: if the elasticity of demand for gas is less th...JP: if the elasticity of demand for gas is less than one, an increase in cars' mpg causes a reduction in the demand for gas. If the elasticity of demand for gas is greater than one, an increase in cars' mpg causes an increase in the demand for gas.<br /><br />I think there's something similar here. Whether freezing is a tightening or loosening of monetary policy depends on the elasticity of demand for money. (But my brain can't quite figure it out.)<br /><br />Good post. As always.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-50849587085342576712013-02-16T11:07:57.234-05:002013-02-16T11:07:57.234-05:00I'm assuming random freezing can only "wo...I'm assuming random freezing can only "work" with a penalty or limit on currency withdrawals. If so, reducing the liquidity of demand deposits can have harmful effects: increased cash transactions, capital flight and a correspondingly low deposit-to-gdp ratio.<br /><br />In Argentina (which has suffered deposit freezes) for instance, "casas de cambio" facilitate the conversion of foreign bank deposits in domestic currency. When someone buys a house, they wire in funds from abroad, convert it to currency at the "casa", and show up at closing with a suitcase full of cash (hopefully accompanied by an armed guard). The infrastructure of deposit-avoidance makes velocity much more sensitive to policy, but not in a beneficial way. <br /><br />Would conversion penalties have harmful unintended consequences in the U.S.? To an economist like Kimball, the probability of that is not high enough for to merit a mention. The reason, presumably, is non-linearity and path dependence don't exist in his models. Unfortunately, they do in the real world.Diego Espinosanoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-57001806189131298612013-02-16T07:45:46.768-05:002013-02-16T07:45:46.768-05:00I think this sentence may be unintentionally rever...I think this sentence may be unintentionally reversed: "Conversely, the Treasury tightens Iranian monetary policy by freezing Iranian deposits in the international payments system and loosens by increasing the ability of Iranian's to participate in the system. "<br /><br />You probably meant to say that the Treasury loosens Iranian monetary policy by freezing Iranian deposits, and tightens by unfreezing. J.P.https://www.blogger.com/profile/02884421653887986971noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-55630306142906328722013-02-15T21:19:07.990-05:002013-02-15T21:19:07.990-05:00Assume a starting point of IOR=FF. If reserves are...Assume a starting point of IOR=FF. If reserves are somehow penalized, then the Fed will have to raise IOR to maintain a constant FF. With IOR>FF, banks will be happy to hold the penalized reserves.<br /><br />"Won't banks simply evade the sanctions by converting deposits into Federal Reserve cash? Unlikely, since they'd be forfeiting IOR and have to pay storage and transportation costs on cash."<br /><br />They don't have a choice. They are obligated to convert if their customers demand currency, which they will if FF is much below 0%.<br /><br />To prevent this, a central bank could suspend conversion of reserves into currency, which would allow an arbitrarily negative FF. The supply of currency wouldn't necessarily be static, but additional currency would be sold at auction. I guess you could call this "banning cash", but it's really transforming bank notes into bearer bonds, which can also be used as a medium of exchange. Hand to hand transactions aren't blocked, just inconvenienced.<br />Maxnoreply@blogger.com