Net foreign assets of the entire depository corporations

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Reference no: EM131836598

Consider an economy where at time t the money stock is 3,000, the net foreign assets of the entire depository corporations sector are 600, the net foreign assets of the monetary authorities are 200, lending by the monetary authorities to other depository corporations (ODC) are 100, other items net of both the monetary authorities and other depository corporations are zero, net credit to government is zero from the monetary authorities and 600 from the other depository corporations, the required reserve ratio is 10 percent and there are no excess reserves. All money balances are held in deposit form.

1. Construct consistent T-tables for

(a) the balance sheet of the monetary authorities,

(b) the consolidated ODC balance sheet, (c) the monetary (DC) survey at time t.

For all the exercises below assume (for the purposes of these exercises) no effect of crowding out of credit to the private sector on real GDP. Also assume that no excess reserves can be held at t+1, velocity is constant between t and t+1, and that money demand equals money supply at time t+1. 2. Taking as a starting point the state at time t from exercise 1 above, and with a fixed exchange rate, nominal money demand increases by 100, while there is no validation of this from the side of the monetary authorities. Construct consistent T-tables for time t+1 for

(a) the balance sheet of the monetary authorities,

(b) the consolidated ODC balance sheet,

3. Do exercise 2 above but now assume that there is validation of the increase in money demand. Construct the set of 3 T-tables for t+1.

4. Do exercise 2 above, but now assume a fully flexible exchange rate, with full pass-through to the price level by time t+1.

5. Taking as a starting point at time t exercise 1 above, have a fiscal deficit increase the stock of domestic bank financing of the government by ODCs by 100. Assume that there is no accommodation by the monetary authorities and a fixed exchange rate. Construct the set of 3 T-tables for t+1.

6. Taking as a starting point at time t exercise 1 above, have a fiscal deficit increase the stock of domestic bank financing of the government by the monetary authorities by 100. Assume a fixed exchange rate. Construct the set of 3 T-tables for t+1.

7. Do exercise 5, but now assume accommodation by the monetary authorities, while keeping the exchange rate fixed. Construct the set of 3 T-tables for t+1.

8. Do exercise 5, but now assume accommodation by the monetary authorities, with a fully flexible exchange rate and full pass-through. Construct the set of 3 T-tables for t+1.

9. Taking as a starting point at time t exercise 1 above, have a fiscal deficit increase the stock of domestic bank financing of the government by the monetary authorities by 100. At the same time have a sterilization operation by an equal amount (100) take place. Assume a fixed exchange rate. Construct the set of 3 T-tables for t+1.

10. Taking as a starting point at time t exercise 1 above, have a fiscal deficit increase the stock of domestic bank financing of the government by the monetary authorities by 100. At the same time have a sterilization operation by an equal amount (100) take place. Assume a flexible exchange rate. Construct the set of 3 T-tables for t+1.

Reference no: EM131836598

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