Saturday, January 13, 2018

That would be basket brigade theory

David Bexkworth:
The Fed can move from its current floor system to a corridor system. Under the latter, the balance sheet can shrink down so that there are few reserve balances in the banking system1. The Fed can still have IOER, but it would be less than short-term market interest rates.2 The IOER would set an floor for short-term interest rates and the Fed's lending rate would be the ceiling for short-term market interest rates. Together this would constitute a corridor system and give the Fed ample control over interest rates. 

Your corrior leaves a chaotic error signal in the central bank balance sheet.  You will have a bounded tradebook error, you will be quantized to an appriximate algebra. Read, "Stages of production", as if the real goods came from a value added container system.

The sandbox has a pit boss code for that.

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