How do central banks control inflation? A guide for the perplexed

Central banks are tasked with managing the money supply, which in turn should affect their currency’s value and inflation. To expand the money supply, most advanced countries buy their own bonds and give the seller currency, and to reduce the money supply, they sell their bonds and pull currency out of circulation. Interest rates can also be adjust

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When the central bank manipulates the interest rate lower than the market clearing price by directing banks to create more money by lending, they are at once reducing the amount of savings available in society and increasing the quantity demanded by borrowers while also directing the borrowed capital toward projects which cannot be completed. Hence

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The sum total of the contribution of both these schools of thought is the consensus taught in undergraduate macroeconomics courses across the world: that the central bank should be in the business of expanding the money supply at a controlled pace, to encourage people to spend more and thus keep the unemployment level sufficiently low. Should a cen

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What the Fed is actually trying to do here—as opposed to the story it’s telling about what’s happening in the economy—is clear, yet extremely difficult: It is trying to destroy demand just enough to reduce excess inflation but not so much that the economy crashes. This a little bit like trying to tranquilize a raging grizzly bear with experimental ... See more

As per the dominant regime of political economy, the artificial money is introduced to the financial sector by means of “open market operations” in which central banks purchase financial instruments on the market to add to their balance sheets in order either to boost the prices of these assets, lower the borrowing costs of corporations, or both at

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As per the dominant regime of political economy, the artificial money is introduced to the financial sector by means of “open market operations” in which central banks purchase financial instruments on the market to add to their balance sheets in order either to boost the prices of these assets, lower the borrowing costs of corporations, or both at

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I don’t think there is a durable industry based on the idea that central banks are going to hyperinflate existing currency, and I do not think a durable industry will be built around the idea that rules requiring transparency of wealth can be circumvented.