tag:blogger.com,1999:blog-582368152716771238.post5291560978919940059..comments2024-03-28T09:32:23.535-05:00Comments on The Grumpy Economist: What zero bound?John H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger22125tag:blogger.com,1999:blog-582368152716771238.post-59433913496494657062016-07-25T10:58:13.223-05:002016-07-25T10:58:13.223-05:00cool!cool!LindaDiazhttps://www.blogger.com/profile/13964912617071286730noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-69021853201632568492012-02-04T21:02:52.128-06:002012-02-04T21:02:52.128-06:00I bet $5 on this one.I bet $5 on this one.Mattiahttps://www.blogger.com/profile/11492685025671226923noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-36443125491976720542012-01-17T13:39:03.713-06:002012-01-17T13:39:03.713-06:00"But a bank has a better option."
But o..."But a bank has a better option."<br /><br />But only banks can hold reserves. German bonds can be held by anyone. Arbitrage is not available when everybody else thinks the banks are too risky. Hence the liquidity premium on German bonds.themoneydemand.blogspot.comhttps://www.blogger.com/profile/13082972557599397165noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-66930908125754555282012-01-16T22:31:02.931-06:002012-01-16T22:31:02.931-06:00There are a million possible reasons for things li...There are a million possible reasons for things like this. It's easy to imagine some esoteric accounting rule somewhere that makes it totally reasonable to starting buying bonds into the ground.Daniel Francishttps://www.blogger.com/profile/06556309179258960542noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-48732641243537224872012-01-16T00:17:17.081-06:002012-01-16T00:17:17.081-06:00Couldn't it just be that the banks are specula...Couldn't it just be that the banks are speculating that german's bonds prices are going to skyrocket in the next months? They want to make a profit in the secondary market.Pedro Cazorla S.https://www.blogger.com/profile/05028546137408616641noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-2830649955034931902012-01-15T20:52:05.449-06:002012-01-15T20:52:05.449-06:00How about the prospect that the future may be domi...How about the prospect that the future may be dominated by deflation and that bonds provide a level of income that will as a result, have more purchasing power? The world is awash with "stuff" to buy and what is missing is the number of capable hands to buy the stuff. High priced goods only seem to be falling, whether Flat Screen TVs or houses. <br /><br />You may flood the banks with tons of capital, but if they cannot find willing/qualified borrowers to lend or desire by potential borrowers to borrow because they already have a "toaster", you can lower the prices until the weakest producers go out of business or until the survivor s can withstand lower margins.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-20277062347179329332012-01-15T16:08:57.322-06:002012-01-15T16:08:57.322-06:00But if negative bond yields in Germany are due to ...But if negative bond yields in Germany are due to investors betting on the end of the euro, this fact does NOTHING to dispel the possibility of a zero lower bound affecting monetary policy of the US, Japan or any other country that is not a member of a currency union. <br /><br />It didn't work.<br /><br />Try again."O" Anonimohttps://www.blogger.com/profile/07896236826318022479noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-83279294839412840722012-01-15T12:30:24.319-06:002012-01-15T12:30:24.319-06:00Ben, Japan HAS tried massive QE. They had a zero ...Ben, Japan HAS tried massive QE. They had a zero interest rate policy for most of the lost decade, and their programs of economic stimulus and bank bailouts are probably responsible for the debacle. In fact, the official interest rate in Japan is still at .1% These programs are having the same results now in the US.Jason Weinmanhttps://www.blogger.com/profile/11211087552762790514noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-55391912621834797192012-01-14T13:23:00.977-06:002012-01-14T13:23:00.977-06:00Several explanations:
1) as a primary dealer at t...Several explanations:<br /><br />1) as a primary dealer at the auctions you probably get stuck with some inventory even if you don't want it. Sure, you could pull out, but you want to be the primary dealer for those bunds and bobbles<br /><br />2) political pressure, sort of related to 1)<br /><br />3) for trading in general, reserves are harder to use as collateral than actual securities. <br /><br />4) Related to 3), easier to trade 6 month bills than actual euros if you want to take a view on the direction of the euro itself. For margin reasons, etc.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-14300661573595167872012-01-14T09:19:06.201-06:002012-01-14T09:19:06.201-06:00Nice article. Keep up the great work!Nice article. Keep up the great work!Junebugnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-10097845657510901152012-01-14T06:37:19.148-06:002012-01-14T06:37:19.148-06:00Herd behavior explains anything and nothing. Herd ...Herd behavior explains anything and nothing. Herd behavior is a description, not an explanation. <br /><br />I believe that the 'challenge' was to come up with a reason for a bank as a rational agent to prefer German bonds to cash at negative yields.Martinnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-26766476143822919912012-01-13T19:11:11.406-06:002012-01-13T19:11:11.406-06:00Aside from your student's hypothesis, I think ...Aside from your student's hypothesis, I think that Joae's suggestion of herd behavior has some merit. Along those lines, their might be some Armageddon planning occurring. In the event of a complete meltdown which leaves the status of even the ECB in doubt, where would you put your money?Tom Lindmarkhttp://www.butthenwhat.comnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-45524222645652085042012-01-13T17:47:40.183-06:002012-01-13T17:47:40.183-06:00Of course, the obvious problem is that inflation i...Of course, the obvious problem is that inflation is way too low, as is economic growth. In this context, only aggressive, public and sustained QE, and perhaps cutting IOR, is workable.<br /><br />Japan has tried low interest rates and mild deflation for 20 years. The result have been an epic failure.Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-26927680590730541052012-01-13T17:34:47.629-06:002012-01-13T17:34:47.629-06:00It's a trade that clearly is working, the bond...It's a trade that clearly is working, the bonds continue to rise in value, so ride the trend....Interest? Who cares about that in the next two months....scottmnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-306099203625132022012-01-13T15:53:54.734-06:002012-01-13T15:53:54.734-06:00Another possibility is herd behavior. If investors...Another possibility is herd behavior. If investors assume a further worsening EU crisis situation it would be rational to be own extremely safe asset. Other instutions might want to buy even more bonds in the close future. This would drive up prices and the current owners may sell with a profit. The problem now only is: What happens when the music stops playing and everyone rushes to the door?Joaenoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-10493512585946208872012-01-13T14:41:14.585-06:002012-01-13T14:41:14.585-06:00Don't you need to think about this from the pe...Don't you need to think about this from the perspective of nominal interest rates not being negative. If you inflation adjust holding reserves that pay no yield and compare that to an asset which provides a yield of 2%, but inflation is 3%. Holding the bond loses 1%, but holding reserves losses 3%.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-1416382998123080042012-01-13T11:48:39.395-06:002012-01-13T11:48:39.395-06:00Perhaps it is better to hold onto them at this poi...Perhaps it is better to hold onto them at this point due to the negative yield and the tax implications (withholding and interest tax). If the yield is negative, it will be similar to being taxed twice on the same asset. <br /><br />Also, Martin may have a point about the periphery countries...Anonymoushttps://www.blogger.com/profile/11265457241089894090noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-43122403818152206612012-01-13T10:51:23.736-06:002012-01-13T10:51:23.736-06:00"There's no more quality or better collat..."There's no more quality or better collateral than cash!" <br /><br />I suppose you mean reserves and not the penny jar. Can reserves function as collateral? Suppose a bank is questionably solvent. Is a claim on the bank's reserves as easy to enforce as possession of a government bond? Can possibly insolvent bank A use its deposits at bank B as collateral when there is a systemic solvency risk? Now consider that German debt is the only really risk-free euro-denominated asset and that all of the euro-zone financial institutions need collateral to operate in the current fashion. Paying negative interest on German bills for a short time may be the price of staying in business where the alternative is to unwind a big share of that business.Charleshttps://www.blogger.com/profile/00607057013050715435noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-46680142405780502362012-01-13T10:20:14.224-06:002012-01-13T10:20:14.224-06:00ECB and German regulators say to banks, "you ...ECB and German regulators say to banks, "you vill buy zeez bonds or we will send in an army of bank inspectors to endlessly harass you." Your mental model is that banks are independent firms trying to maximize profits so buying negative yield bonds over holding cash is stupid. It clearly is. My mental model is that banks are wholly-owned subsidiaries of the political authorities and do what they're told or else.<br /><br />Public Choice > Economics once again.doclawsonhttps://www.blogger.com/profile/13134209853620151481noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-37785198983986828062012-01-13T09:42:19.652-06:002012-01-13T09:42:19.652-06:00It's possible that banks can use the bonds as ...It's possible that banks can use the bonds as collateral against loans at even greater negative rates. The banks would still technically own the bonds, but their carry on the trade would be positive.Kennoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-59662524798497323262012-01-13T08:59:13.100-06:002012-01-13T08:59:13.100-06:00What would happen if a bank would have a lot of pe...What would happen if a bank would have a lot of periphery debt and the periphery would default? Which bank is then likely to be saved? The bank whose bankruptcy will increase the supply of German bonds on the market or the bank whose bankruptcy will have a negligible impact on said supply?Martinnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-16992824622645969292012-01-13T08:58:30.774-06:002012-01-13T08:58:30.774-06:00Could they have gone "special", with ban...Could they have gone "special", with banks using them for their LTROs with the ECB? That way, a bank has a solid asset (a German bill) on its balance sheet and a cash infusion in February from the ECB in case interbank market freeze or bank-runs risk increase. Not sure though, just an unproven theory.Anonymousnoreply@blogger.com