tag:blogger.com,1999:blog-8897997766931633186.post8635059064972906189..comments2024-02-14T03:21:37.506-05:00Comments on Monetary Freedom: Does index futures targeting imply a target for the interest rate?Bill Woolseyhttp://www.blogger.com/profile/06330232724290161369noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-8897997766931633186.post-89019676404596958302016-08-24T16:44:44.546-04:002016-08-24T16:44:44.546-04:00It’s very hard to say, I believe we need to take a...It’s very hard to say, I believe we need to take actions only when we are certain or else the better thing is to be patience. I always follow the market which helps me with performance big time, I believe if we wish to be successful then we need to be sharp. I like working with OctaFX broker where they have outstanding set of conditions whether it’s to do with low spreads, high leverage, bonuses or even rebates, it’s all top quality!Nawaznoreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-47484045329708767362012-04-11T16:52:36.563-04:002012-04-11T16:52:36.563-04:00Bill,
There is a continuum between NGDP linked bo...Bill,<br /><br />There is a continuum between NGDP linked bonds and NGDP futures. It is just that for convenience NGDP indexed bonds with high sensitivity to changes to NGDP are called NGDP futures, and NGDP futures with high margin requirements are called NGDP linked bonds. And it is trivially easy for the users of such instruments to transform one into other by adding or subtracting the regular bonds to their portfolios. <br /><br />If someone goes long on a futures contract for a commodity, they get an exposure to the underlying commodity, that exposure is an asset. At the same time, this asset is combined with a liability to pay for that commodity it the future.<br /><br />If they sell a future, they are promising to deliver a commodity, but they are also going to collect money. So basically an asset (exposure to a commodity) is sold, and another asset (financial asset, a right to collect money) is acquired. <br /><br />So no matter if you acquire a NGDP future, or if you acquire a NGDP linked bond, in both cases you have acquired an NGDP-linked asset. In both cases there is a loan involved, explicit in case of a bond, implicit in the case of the future. Only the terms and conditions of that loan are different.<br /><br />Your post on NGDP linked bonds has shown that it doesn't really matter if you have futures or linked bond convertibility. What is important that the financing terms of future or linked bond change the money supply or demand in the right way. Thus you have added a couple of paragraphs about the sterilization of monetary impact of NGDP bond trades.<br /><br />In my proposal NGDP futures (or NGDP linked bonds if you like) are constructed in a way that automatically creates sterilization effects that are needed.<br /><br />In the case of the liabilities of the central bank, these NGDP-linked instruments directly serve as base money without the involvement of margin accounts.<br /><br />In the case of the assets of the central bank, their creation does not tie up money, as they are collateralized by the private sector collateral.123http://themoneydemand.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-88740015148478582682012-04-11T12:34:48.726-04:002012-04-11T12:34:48.726-04:00123:
I don't know what is missing exactly, bu...123:<br /><br />I don't know what is missing exactly, but they don't seem like futures to me.<br /><br />When people sell futures they don't receive money. They rather pay money to place in a margin account.<br /><br />Then someone goes long on a futures contract for a commodity, they are promised the commodity, but they still have to pay for it in the future. If they actually received the commodity, the money they paid might be greater or less than the value of the commodity. How is that an asset?<br /><br />If they sell a future, they are promising to deliver a commodity, but they are also going to collect money. Whether the money is more or less than the commodity depends on the price of the commodity at the future time. If the price of the commodity is less than the amount of money received, how is that a liability?<br /><br />It seems to me that you are proposing some variable interest rate bond rather than a futures contract.Bill Woolseyhttps://www.blogger.com/profile/06330232724290161369noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-60742765459804085242012-04-09T16:57:55.784-04:002012-04-09T16:57:55.784-04:00In my bare bones central bank model all the centra...In my bare bones central bank model all the central bank assets and all the liabilities are NGDP futures. Central bank goes long futures on the asset side, and goes short on the liability side. <br /><br />NGDP futures on the liability side are base money, NGDP futures on the asset side represent refinancing operations.<br /><br />When NGDP is above target path, central bank income is higher on the asset side, payouts are higher on the liability side. Net profit stays the same and is equal to the 100 bps spread between the base money NGDP future interest rate and asset side NGDP future interest rate (minus any credit losses). <br /><br />Base money represents short NGDP position for the central bank, and long NGDP position for the users of money. <br /><br />Refinancing NGDP futures on the asset side of central bank balance sheet represent long NGDP position for the central bank, and short NGDP position for the refinancing counterparties of the central bank. Counterparties have to post collateral on a daily basis so credit risk is managed, the value of collateral is marked to market on a daily basis.<br /><br />Central bank operates in a passive manner, there are no OMOs. Every day base money is accepted as a means of payment when the refinancing counterparties want to close their short NGDP positions and withdraw collateral.<br /><br />Every day the central bank pays newly issued base money in a passive manner whenever refinancing counterparties post additional collateral in order to expand their short NGDP positions.<br /><br />This model is as simple as possible. What is missing?123http://themoneydemand.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-32008950193280021652012-04-09T12:32:15.649-04:002012-04-09T12:32:15.649-04:00Thank you 123.
I am not quite sure about the cent...Thank you 123.<br /><br />I am not quite sure about the central bank holding index futures as its only asset.<br /><br />Is it buying futures, selling them, or both?Bill Woolseyhttps://www.blogger.com/profile/06330232724290161369noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-55966987406601900022012-04-08T16:10:26.679-04:002012-04-08T16:10:26.679-04:00Some initial thoughts.
1. I did not argue that f...Some initial thoughts. <br /><br />1. I did not argue that futures convertibility is equivalent to fed funds rate targeting according to a Taylor-like rule. Futures convertibility is equivalent to IOR targeting according to a Taylor-like rule instead, overnight interbank rates are not targeted.<br /><br />2. My perspective is very simple. If we desire futures convertibility, we should use futures as money.<br /> Suppose that there is no federal debt outstanding after the Clinton gridlock era. Suppose Friedman's 1959 argument that IOR should be paid at the market rate is universally accepted. Suppose we target 5% NGDP growth path. Suppose we take the futures index convertibility requirement literally and decide that the monetary base is the NGDP future and margin account all-in-one. IOR is 4.5% plus x times the current NGDP gap. IOR is paid on a daily basis. The only assets central bank holds are NGDP futures too. The central bank collects IOR plus 1% on the futures it holds on the asset side of the balance sheet, and requires that enough private sector collateral is continuously posted so the credit losses on the futures portfolio are expected to be below 0.2% annually. As this business is profitable, the central bank stands ready to purchase the unlimited amount of conforming private sector futures on a daily basis and pay for them with base money aka futures. Base money is accepted by the central bank as a payment when the private sector wants to withdraw collateral and close the expensive IOR+1% futures position. <br /><br />3. My conjecture is that such a scheme would do a reasonable job in stabilizing AD. The convertibility requirement would be satisfied by definition. Overnight interbank rate is free to fluctuate in the free market. If you say that your or Scott's futures targeting arrangement is superior, then what is the source of that superiority? The existence of zero IOR base money? Holding of government securities on the asset side? Laxer margin requirements? Anything else?<br /><br />More comments are forthcoming... (related to free banking etc...)123http://themoneydemand.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-8897997766931633186.post-82862432427760469192012-04-07T16:10:17.950-04:002012-04-07T16:10:17.950-04:00Very interesting commentary.
A practical questi...Very interesting commentary. <br /><br />A practical question: Is it possible to test different monetary policies, in the real world? Learning do doing can be expensive, but sometimes the only way. <br /><br />Your wife can't learn to drive no matter how many videos she watches or simulators she sits in. So you risk the family car--but first on little side streets etc.Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.com