The present article proposes to draw on the recent experiences of many central banks of advanced economies and the evolution of their operational frameworks in the new context of increased domestic liquidity, when analysing the operations of central banks that engage in exchange rate management and increase their official foreign reserves as a result. It argues that the theoretical literature on endogenous money set within the context of an open economy with an exchange rate objective needs to be amended to account for such developments, as it would be entirely possible for a central bank that accumulates substantial foreign reserves to adopt a floor system and thus maintain a near-perfect control over its policy interest rate without the need for any compensating measure. On the grounds of the reverse causation argument, establishing a direct link between the foreign reserves and the monetary base should not entail any quantitative effect on other economic variables.
We explore the short-term macrodynamics of stabilization policy at the effective lower bound (ELB) of the nominal interest rate, in an environment characterized by heterogenous and endogenously time-varying private-sector output and inflation expectations driven by evolutionary dynamics. We show that at the ELB, fiscal policy conducted in accordance with a well-specified policy rule is particularly effective for purposes of macroeconomic stabilization. This is because fiscal interventions have both a direct effect on output and inflation (via aggregate demand formation) and an indirect effect on these same target variables, via the management of heterogenous and evolving expectations. As a result of the two channels through which it operates, and seemingly despite the logic of the Tinbergen (targets-instruments) principle, fiscal policy is thus revealed as a single policy instrument capable of achieving two policy goals.
Based on a self-constructed data set originating from Chinese official statistics, we show in this paper that there is generally a positive relationship between credit provision to the corporate sector and GDP growth in China, this relationship is non-linear in terms of Chinese regions and credit-to-GDP ratio, and that industrial policy targeting could have led to more investment and GDP growth, however, there are differences among industries and firm types.
This paper investigates how numerical fiscal rules affect government investment in the EU and disentangles their effect over the business cycle. Public investment seems to be generally susceptible to cutbacks during recessions.