Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/258764 
Year of Publication: 
2022
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 15 [Issue:] 2 [Article No.:] 40 [Publisher:] MDPI [Place:] Basel [Year:] 2022 [Pages:] 1-17
Publisher: 
MDPI, Basel
Abstract: 
What problem the Fed and other central banks are solving by printing money and letting interest rates fall to zero is the focus of this paper. This activity does not appear to affect nominal GDP or inflation prior to COVID, and yet central bank liabilities have continued to rise. This suggests the presence of rising cash demand that has prevented excess cash and inflation pressures from emerging. While there was some hope that quantitative easing would be a new instrument in addition to interest rates as far as monetary policy goals were concerned, this has not proved to be the case. Instead, banking system demand for central bank liabilities keeps rising as an endogenous response to the changed business models of banks forced on them by post-crisis re-regulation and extremely low interest rates. These ideas were tested with cointegration and error correction econometric techniques. Examples of the growing risk of leverage and counterparty risks in this disequilibrium process are provided.
Subjects: 
monetary policy
quantitative easing
QE
financial regulation
Liquidity Coverage Ratio
demand for bank reserves
central bank money
cointegration
Archegos
derivatives
rehypothecation
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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