We’re sending readers the link to this excellent primer about the five categories of monetary policy operations in today’s world, each of them representing a role that a central bank plays. Cechetti and Tucker argue that each of these applications of policy should unfold within a clearly communicated framework addressing purposes, objectives, and constraints. The paper takes five minutes. The internal links to references are worth the extra time for serious readers. Here’s the paper:
“Understanding How Central Banks Use Their Balance Sheets: A Critical Categorization,”
https://www.moneyandbanking.com/commentary/2021/6/6/understanding-how-central-banks-use-their-balance-sheets-a-critical-categorization
Steve Cecchetti and Paul Tucker are providing a special service, and it’s free for the investor or strategic thinker who wishes to be informed.
There are many criticisms of Chairman Powell and the Fed. There are many harsh forecasts of coming disaster. It is easy to throw stones at the central bank and conjure “what if” counterfactual projections.
It is much harder to dig deeper and observe the interconnection of five applications now extant in monetary policy. It used to be two.
We applaud Cecchetti and Tucker’s efforts to make a very difficult issue more understandable for a broad readership.
For practitioners who are stuck in the paradigm of a two factor policy framework (interest rate and bank reserve) we encourage rethinking the globally interconnected, five factor construction. We have a 26-page slideshow coming which will demonstrate it.
In our US ETF portfolio we’re no longer fully invested. We have started to expand cash reserves that could change up or down at any time.
David R. Kotok
Chairman of the Board & Chief Investment Officer
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Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.
