ECON 1115 Lecture 19: Wall Street Journal Discussion and Concepts Review

102 views4 pages
ECON1115Lecture19WallStreetJournalDiscussionandConceptsReview
Theprofessorstartedtheclasswithcurrentmarketdiscussion.
StudentswereaskedtoreadandunderstandlatestWallStreetJournalnews.
Discussionpoints:
Themarketindexisuptoday.
● Salesofexistinghomesroseby4.7%inSeptembertothesecondhighestpaceineight
years,ascontinuedlowinterestratesandpentupdemandsupportedthehousing
recovery.
● ObviouslyJanetYellenisveryhappyduetothesesalesresults.
● ECB’sMarioDraghiSignalboosttoStimulusProgram:
EuropeanCentralBankPresidentMarioDraghisignalledthatthebankis
preparedtoundertakeanotherlargestimuluspackagethatcouldincludemorebond
purchasesandacuttothealreadynegativedepositrate,astheeurozonestruggles
withultralowinflationandatepidrecovery.
FinancialmarketsralliedonexpectationsofadditionalECBstimulus.
● Stocksandbondsintheeurozonesurged.
● TheEuroStocks50indexclimbed2.6%.Yieldsonshortdatedbondsintheeuro
zone,whicharehighlysensitivetointerestrateexpectations,touchednewlows.
● Germany’s2yearyieldfelltoarecordtroughofminus0.3%.
● Yieldsfallaspricesrise.
● Theeurotumbledtoatwoweeklowagainstthedollarof$1.1152.
● Expansionarymonetarypoliciestypicallyweakenacurrency’svalue.
NegativeInterestRatePolicy(NIRP):
● Anegativeinterestratepolicy(NIRP)isanunconventionalmonetarypolicytoolwhereby
nominaltargetinterestratesaresetwithanegativevalue,belowthetheoreticallower
boundofzeropercent.
● Anegativeinterestratemeansthecentralbankandperhapsprivatebankswillcharge
negativeinterest:insteadofreceivingmoneyondeposits,depositorsmustpayregularly
tokeeptheirmoneywiththebank.
● Thisisintendedtoincentivizebankstolendmoneymorefreelyandbusinessesand
individualstoinvest,lend,andspendmoneyratherthanpayafeetokeepitsafe.
● Anexampleofanegativeinterestratepolicywouldbetosetthekeyrateat–0.2%,
suchthatbankdepositorswouldhavetopaytwotenthsofapercentontheirdeposits
insteadofreceivinganysortofpositiveinterest.
NegativeDepositRate:
Unlock document

This preview shows page 1 of the document.
Unlock all 4 pages and 3 million more documents.

Already have an account? Log in

Get access

Grade+
$10 USD/m
Billed $120 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers