Report
Patrick Artus

Monetary policy: What is endogenous or exogenous?

Four variables related to monetary policy can be considered: The short-term interest rate; The long-term interest rate; The money supply; The exchange rate. Whi ch of these variables are exogenous or endogenous in the different monetary policy organisations? Fixed (and therefore exogenous) exchange rates have long since been abandoned in OECD countries. We then have two regimes: The "traditional" regime: the central bank controls the short-term interest rate and the money supply (i.e. de facto the structure of the financing of the fiscal deficit between money and bonds); the long-term interest rate is endogenous; the exchange rate is endogenous but its fluctuations are cushioned : if there are, for example, capital outflows, they are also corrected by a rise in long-term interest rates; The "new" regime: the central bank controls the short-term interest and the long-term interest rate s ; as a result, the money supply is endogenous, and all external shocks are corrected by movements in the exchange rate.
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Natixis
Natixis

Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.

 

Analysts
Patrick Artus

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