The E-Monetary Theory (Economics: The Open-Access, Open-Assessment E-Journal )
We develops a dynamic model with two types of electronic money: reserves for transactions between bankers and zero-maturity deposits for transactions in the non-bank private sector. Using this model, we assess the efficacy of unconventional monetary policy since the Great Recession. After quantitative easing, keeping the interest on reserves near zero too long might create deflation. The central bank can safely get out of the “low rate-cum-deflation” trap by “raising rate and raising money supply”.
Interest on Reserves, helicopter money and new monetary policy (PLOS ONE)
Published version (Download here)
(The previous version was titled "Interest on reserves and Monetary policy of targeting both interest rate and money supply)
We build a dynamic model with currency, demand deposits and bank reserves. The monetary base is controlled by the central bank, while the money supply is determined by the interactions between the central bank, banks and public. In banking crises when banks cut loans, a Taylor rule is not efficient. Negative interest on reserves or forward guidance is effective, but deflation is still likely to be persistent. If the central bank simultaneously targets both the interest rate and the money supply by a Taylor rule and a Friedman's k-percent rule, inflation and output are stabilized.
Since 1980, the U.S. economy has witnessed simultaneously two macroeconomic themes: (i) the substantial growth of the financial sector, and (ii) the significant rise in income inequality. At the same time, there was a crucial change in the financial market where a wide range of new financial assets were introduced. This paper, by presenting a simple model of the interaction between the financial and real sectors, shows that the appearance of new financial instruments can generate both above themes. It can also explain the dominance of Wall Street against Main Street (non-financial sectors) in the top income earners category.
Retail sector and Economic Development - with Tien Ngo
We build a model for emerging economies where households could search goods through two retail platforms: the legal organized (supermarket) and the informal unorganized (mom-and-pop store). We highlight the role of the retail sector as a special two-sided platform in goods market. A positive shock on the productivity of supermarket pulls both consumers (demand) and firms (supply) to make transactions there. This effect is amplified through the interaction between demand and supply, motivating manufacturing firms to become formal to supply goods through this channel. We do the quantitative exercise for the Indian economy; a 1 percent increase in the productivity of organized retailers leads to an increase in the aggregate productivity of 0.3 percent, 80 percent of which is contributed indirectly by the shift in the manufacturing sector.