Why Central Bank balance sheet expansion during COVID19 is not pumping asset prices
As there still seems to be major confusions regarding central bank actions and what it means for the financial markets in general, I decided to try "one last time" to explain in maybe one of my most detailed posts on how different balance sheets across sectors of financial markets react to central bank policy and how financial markets are supposed to work in "normal times". The essential message of this post is the same as that of my previous short post on covid crisis , but this time with more rigorous technical exposition. As I have explained here in detail, the monetary policy implementation method since the Global Financial Crisis (GFC) is a so-called "floor system", where in theory, the interest rate on excess reserves (IOER) works as a lower bound for short term interest rates in the economy. In short, this is because the reserve supply greatly exceeds that of which there is demand for in the banking system as a whole, thus, in theory, the comp...