Conflicting objectives in monetary policy

Central banks have an important position in national economies because they influence fundamental economic parameters such as price levels, interest rates and exchange rates with monetary policy decisions. Due to the outstanding position of the central banks and the developments in the course of the financial crisis since 2007, the question arises to what extent monetary policy interventions can create stability and reduce the extent of crises. The present work offers an answer based on a macroeconomic portfolio model, in which the mutual dependencies of financial markets and the real economy are taken into account. The conflicting objectives of monetary policy interventions are discussed using measures to stabilize exchange rates and expansive monetary policy in times of crisis, such as government bond purchases and credit expansions. The model shows for the first time, based on microeconomics, that such central bank interventions have a long-term impact on the real economy. They stabilize domestic real production while preventing economically appropriate changes in domestic real capital at the expense of other countries. This results in an inefficient international allocation of productive resources, which is accompanied by financial market volatility and an accumulation of risk positions on central bank balance sheets. In the case of an expansive monetary policy, these effects are also associated with increases in goods prices and currency devaluation. Overall, the results show that exchange rate stabilizing measures and expansive monetary policy in times of crisis harbor the risk of a permanently negative impact on world welfare.

Details

• Title: Conflicting goals in monetary policy
• Subtitle: The influence of central banks on financial markets and the real economy
• Author: Dr. Stefan Schueder
• Series: Dissertation series Economics
• Edition: 1st edition
• Band: 3
• University: Georg-August University of Göttingen
• Released: 1st edition 08/23/2012
• Subject: Economics
• Product Type: Book (Hardcover)
• Product type: Dissertation
• Language: German
• Binding: Softcover (paperback)
• Dimensions: 21.0 x 14.8 cm (DIN A5)
• Extent: 336 pages
• Condition: New (shrink-wrapped in foil)

Keywords: Stock market, bond market, expansive monetary policy, financial crisis, financial market, financial market volatility, financial economy, monetary expansion, monetary policy, monetary theory, Impossible Trinity, inflation, macroeconomics, macroeconomics, portfolio theory, quantitative easing, real economy, risk, volatility, exchange rate, exchange rate stabilization, Central bank, trade-offs, interest rate

Author

The author Stefan Schüder, born in 1981, studied economics at the Georg-August University in Göttingen from 2002 to 2007. He then worked as a research assistant at the Göttingen Chair for International and Monetary Economics. In his research, he focused on the macroeconomic analysis of central bank monetary policy interventions and successfully completed his doctorate at the Faculty of Economics at the University of Göttingen in June 2012.

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