DOCSLIB.ORG

MONEY AS YOU GROW 20 Things Kids Need to Know to Live Financially Smart Lives Presented by Beth Kobliner

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
MONEY AS YOU GROW 20 Things Kids Need to Know to Live Financially Smart Lives Presented by Beth Kobliner MONEY AS YOU GROW 20 THINGS KIDS NEED TO KNOW TO LIVE FINANCIALLY SMART LIVES PRESENTED BY BETH KOBLINER PRESIDENT’s ADVISORY COUNCIL ON FINANCIAL CAPABILITY YOUTH SUBCOMMIttEE: AMY Rosen (Chair), Ted BECK, JOHN BRYANT, SAMUEL JACKSON, BETH KOBLINER, JOHN Rogers (ex-oFFicio), SHERRY SALWAY BLACK, CARRIE SCHWAB-POMERANTZ TO SEE THE FULL PresentatION, GO TO moneyasyougrow.ORG 20 THINGS KIDS NEED TO KNOW TO LIVE FINANCIALLY SMART LIVES 17 You should use a credit card only if you can 13 PAY OFF THE MONEY OWED IN FULL It’s important to KNOW each month. WHAT A COLLEGE WILL COST you before 18 choosing it. You need HEALTH 14 INSURANCE. 9 You should AVOID You should SAVE AT 19 USING CREDIT LEAST A DIME for every CARDS to buy things Putting all your eggs dollar you receive. you can’t afford to in one basket can be a risky way to invest; 10 pay for with cash. consider a DIVERSE Entering a credit card 15 MIX OF STOCKS, number online is risky 5 BONDS, AND CASH. because someone Your fi rst paycheck You need to MAKE could STEAL YOUR may seem smaller 20 than expected since CHOICES about how INFORMATION. Always consider to spend your money. MONEY IS TAKEN OUT FOR TAXES. two factors before 11 investing: 6 THE RISKS The earlier you start to 16 AND THE ANNUAL It’s good to shop around save, the faster you’ll EXPENSES. A great place to 1 and COMPARE PRICES benefi t from compound before you buy. interest, which means SAVE AND INVEST YOU NEED MONEY YOUR MONEY EARNS MONEY you earn is to buy things. 7 INTEREST on your in a Roth IRA. interest. 2 It can be costly and DANGEROUS You earn money by TO SHARE 12 WORKING. INFORMATION online. A CREDIT CARD IS A TYPE OF LOAN; if you 3 8 don’t pay your bill in You may have to Putting your money in full every month, you’ll WAIT BEFORE YOU a savings account will be charged interest and CAN BUY something PROTECT it and pay owe more than you you want. you interest. originally spent. 4 There’s a difference between THINGS YOU WANT and things you need. BETH KOBLINER, PRESIDENT’S ADVISORY COUNCIL ON FINANCIAL CAPABILITY 3-5 YRS 6-10 YRS 11-13 YRS 14-18 YRS 18+ YRS 20 THINGS KIDS NEED TO KNOW TO LIVE FINANCIALLY SMART LIVES 17 You should use a credit card only if you can 13 PAY OFF THE MONEY OWED IN FULL It’s important to KNOW each month. WHAT A COLLEGE WILL COST you before 18 choosing it. You need HEALTH 14 INSURANCE. 9 You should AVOID You should SAVE AT 19 USING CREDIT LEAST A DIME for every CARDS to buy things Putting all your eggs dollar you receive. you can’t afford to in one basket can be a risky way to invest; 10 pay for with cash. consider a DIVERSE Entering a credit card 15 MIX OF STOCKS, number online is risky 5 BONDS, AND CASH. because someone Your fi rst paycheck You need to MAKE could STEAL YOUR may seem smaller 20 than expected since CHOICES about how INFORMATION. Always consider to spend your money. MONEY IS TAKEN OUT FOR TAXES. two factors before 11 investing: 6 THE RISKS The earlier you start to 16 AND THE ANNUAL It’s good to shop around save, the faster you’ll EXPENSES. A great place to 1 and COMPARE PRICES benefi t from compound before you buy. interest, which means SAVE AND INVEST YOU NEED MONEY YOUR MONEY EARNS MONEY you earn is to buy things. 7 INTEREST on your in a Roth IRA. interest. 2 It can be costly and DANGEROUS You earn money by TO SHARE 12 WORKING. INFORMATION online. A CREDIT CARD IS A TYPE OF LOAN; if you 3 8 don’t pay your bill in You may have to Putting your money in full every month, you’ll WAIT BEFORE YOU a savings account will be charged interest and CAN BUY something PROTECT it and pay owe more than you you want. you interest. originally spent. 4 There’s a difference between THINGS YOU WANT and things you need. BETH KOBLINER, PRESIDENT’S ADVISORY COUNCIL ON FINANCIAL CAPABILITY 3-5 YRS 6-10 YRS 11-13 YRS 14-18 YRS 18+ YRS 20 THINGS KIDS NEED TO KNOW TO LIVE FINANCIALLY SMART LIVES 3-5 6-10 11-13 14-18 18+ YRS YRS YRS YRS YRS ABOUT RESOURCES POSTER BETH KOBLINER, PRESIDENT’S ADVISORY COUNCIL ON FINANCIAL CAPABILITY 20 THINGS KIDS NEED TO KNOW TO LIVE FINANCIALLY SMART LIVES 1 2 3 4 YOU NEED MONEY You earn money You may have to There’s a difference to buy things. by WORKING. WAIT BEFORE between THINGS YOU CAN BUY YOU WANT and ACTIVITIES ACTIVITIES something you things you need. want. ACTIVITIES ACTIVITIES 6-10 11-13 14-18 18+ MILESTONES FOR 3-5 YEAR OLDS YRS YRS YRS YRS ABOUT RESOURCES POSTER BETH KOBLINER, PRESIDENT’S ADVISORY COUNCIL ON FINANCIAL CAPABILITY 20 THINGS KIDS NEED TO KNOW TO LIVE FINANCIALLY SMART LIVES ACTIVITIES TO HELP YOUR KIDS REACH THIS MILESTONE 3 4 3 You earn money You may have to When your child is standing in line for a turn There’s a Youdifference may have to by WORKING. WAIT BEFORE on the swings, or looking forward to her favorite between THINGSWAIT BEFORE YOU CAN BUY holiday, point out that sometimes we have to YOU WANTYOU and CAN BUY ACTIVITIES something you wait for things we want. things yousomething need. you want. want. Find three jars (or cans) and label one for ACTIVITIES ACTIVITIES saving, one for spending, and one for sharing. Suggest that your child put some of the money she gets into the saving jar, so she can buy a toy or treat when she has saved enough. 6-10 11-13 14-18 18+ MILESTONES FOR 3-5 YEAR OLDS YRS YRS YRS YRS ABOUT RESOURCES POSTER BETH KOBLINER, PRESIDENT’S ADVISORY COUNCIL ON FINANCIAL CAPABILITY 20 THINGS KIDS NEED TO KNOW TO LIVE FINANCIALLY SMART LIVES 5 6 7 8 You need to MAKE It’s good to shop It can be costly Putting your CHOICES about around and and DANGEROUS money in a savings how to spend your COMPARE PRICES TO SHARE account will money. before you buy. INFORMATION PROTECT it and online. pay you interest. ACTIVITIES ACTIVITIES ACTIVITIES ACTIVITIES 3-5 11-13 14-18 18+ YRS MILESTONES FOR 6-10 YEAR OLDS YRS YRS YRS ABOUT RESOURCES POSTER BETH KOBLINER, PRESIDENT’S ADVISORY COUNCIL ON FINANCIAL CAPABILITY 20 THINGS KIDS NEED TO KNOW TO LIVE FINANCIALLY SMART LIVES ACTIVITIES TO HELP YOUR KIDS REACH THIS MILESTONE 8 Putting Ityour can be costly Putting your Visit a nearby federally insured bank or credit union with your child. money inand a savingsDANGEROUS money in a savings accountTO will SHARE account will Ask about the interest rates on PROTECTINFORMATION it and PROTECT it and a savings account. pay youonline. interest. pay you interest. Discuss with your child how money in savings ACTIVITIES ACTIVITIES accounts is protected by federal insurance. If the bank goes out of business, she will get her money back. Open a savings account for your child. 3-5 11-13 14-18 18+ YRS MILESTONES FOR 6-10 YEAR OLDS YRS YRS YRS ABOUT RESOURCES POSTER BETH KOBLINER, PRESIDENT’S ADVISORY COUNCIL ON FINANCIAL CAPABILITY 20 THINGS KIDS NEED TO KNOW TO LIVE FINANCIALLY SMART LIVES 9 10 11 12 You should SAVE Entering a credit The earlier you A CREDIT CARD IS AT LEAST A DIME card number start to save, A TYPE OF LOAN; for every dollar online is risky the faster you’ll if you don’t pay you receive. because someone benefit from your bill in full could STEAL YOUR compound interest, every month, you’ll ACTIVITIES INFORMATION. which means YOUR be charged interest MONEY EARNS and owe more ACTIVITIES INTEREST on your than you originally ACTIVITIES interest. spent. ACTIVITIES ACTIVITIES 3-5 6-10 14-18 18+ YRS YRS MILESTONES FOR 11-13 YEAR OLDS YRS YRS ABOUT RESOURCES POSTER BETH KOBLINER, PRESIDENT’S ADVISORY COUNCIL ON FINANCIAL CAPABILITY 20 THINGS KIDS NEED TO KNOW TO LIVE FINANCIALLY SMART LIVES ACTIVITIES TO HELP YOUR KIDS REACH THIS MILESTONE 11 12 11 Entering a credit The earlier you Show your child the following: If he sets aside A CREDITThe CARD earlier IS you card or Social start to save, $100 every year starting at age 14, he’d have about A TYPE startOF LOAN to save,; Security number the faster you’ll $23,000 at age 65. However, if he begins saving at if you don’tthe fasterpay your you’ll age 35 he’d have about $7,000 at age 65. Assume online puts you at benefit from bill in fullbenefit every from the account earns 5% every year. risk for someone compound interest, month, compoundyou’ll be interest, STEALING YOUR which means YOUR To compute compound interest, use chargedwhich interest means YOUR INFORMATION. MONEY EARNS the calculators at investor.gov. and oweMONEY more EARNS INTEREST on your than youINTEREST originally on your ACTIVITIES interest. Discuss how much your child can save. spent. interest. What will he have to give up? Is it worth it? ACTIVITIES ACTIVITIES 3-5 6-10 14-18 18+ YRS YRS MILESTONES FOR 11-13 YEAR OLDS YRS YRS ABOUT RESOURCES POSTER BETH KOBLINER, PRESIDENT’S ADVISORY COUNCIL ON FINANCIAL CAPABILITY 20 THINGS KIDS NEED TO KNOW TO LIVE FINANCIALLY SMART LIVES 13 14 15 16 It’s important to You should Your first paycheck A great place to know WHAT A AVOID USING may seem smaller SAVE AND INVEST COLLEGE WILL CREDIT CARDS than expected since MONEY you earn is COST you before to buy things you MONEY IS TAKEN in a Roth IRA.
Load more

Recommended publications
  • Inside Money, Business Cycle, and Bank Capital Requirements
    Inside Money, Business Cycle, and Bank Capital Requirements Jaevin Park∗y April 13, 2018 Abstract A search theoretical model is constructed to study bank capital requirements in a respect of inside money. In the model bank liabilities, backed by bank assets, are useful for exchange, while bank capital is not. When the supply of bank liabilities is not sufficiently large for the trading demand, banks do not issue bank capital in competitive equilibrium. This equilibrium allocation can be suboptimal when the bank assets are exposed to the aggregate risk. Specifically, a pecuniary externality is generated because banks do not internalize the impact of issuing inside money on the asset prices in general equilibrium. Imposing a pro-cyclical capital requirement can improve the welfare by raising the price of bank assets in both states. Key Words: constrained inefficiency, pecuniary externality, limited commitment JEL Codes: E42, E58 ∗Department of Economics, The University of Mississippi. E-mail: [email protected] yI am greatly indebted to Stephen Williamson for his continuous support and guidance. I am thankful to John Conlon for his dedicated advice on this paper. This paper has also benefited from the comments of Gaetano Antinolfi, Costas Azariadis and participants at Board of Governors of the Federal Reserve System, Korean Development Institute, The University of Mississippi, Washington University in St. Louis, and 2015 Mid-West Macro Conference at Purdue University. All errors are mine. 1 1 Introduction Why do we need to impose capital requirements to banks? If needed, should it be pro- cyclical or counter-cyclical? A conventional rationale for bank capital requirements is based on deposit insurance: Banks tend to take too much risk under this safety net, so bank capital requirements are needed to correct the moral hazard problem created by deposit insurance.
    [Show full text]
  • A Primer on Modern Monetary Theory
    2021 A Primer on Modern Monetary Theory Steven Globerman fraserinstitute.org Contents Executive Summary / i 1. Introducing Modern Monetary Theory / 1 2. Implementing MMT / 4 3. Has Canada Adopted MMT? / 10 4. Proposed Economic and Social Justifications for MMT / 17 5. MMT and Inflation / 23 Concluding Comments / 27 References / 29 About the author / 33 Acknowledgments / 33 Publishing information / 34 Supporting the Fraser Institute / 35 Purpose, funding, and independence / 35 About the Fraser Institute / 36 Editorial Advisory Board / 37 fraserinstitute.org fraserinstitute.org Executive Summary Modern Monetary Theory (MMT) is a policy model for funding govern- ment spending. While MMT is not new, it has recently received wide- spread attention, particularly as government spending has increased dramatically in response to the ongoing COVID-19 crisis and concerns grow about how to pay for this increased spending. The essential message of MMT is that there is no financial constraint on government spending as long as a country is a sovereign issuer of cur- rency and does not tie the value of its currency to another currency. Both Canada and the US are examples of countries that are sovereign issuers of currency. In principle, being a sovereign issuer of currency endows the government with the ability to borrow money from the country’s cen- tral bank. The central bank can effectively credit the government’s bank account at the central bank for an unlimited amount of money without either charging the government interest or, indeed, demanding repayment of the government bonds the central bank has acquired. In 2020, the cen- tral banks in both Canada and the US bought a disproportionately large share of government bonds compared to previous years, which has led some observers to argue that the governments of Canada and the United States are practicing MMT.
    [Show full text]
  • Modern Monetary Theory: a Marxist Critique
    Class, Race and Corporate Power Volume 7 Issue 1 Article 1 2019 Modern Monetary Theory: A Marxist Critique Michael Roberts [email protected] Follow this and additional works at: https://digitalcommons.fiu.edu/classracecorporatepower Part of the Economics Commons Recommended Citation Roberts, Michael (2019) "Modern Monetary Theory: A Marxist Critique," Class, Race and Corporate Power: Vol. 7 : Iss. 1 , Article 1. DOI: 10.25148/CRCP.7.1.008316 Available at: https://digitalcommons.fiu.edu/classracecorporatepower/vol7/iss1/1 This work is brought to you for free and open access by the College of Arts, Sciences & Education at FIU Digital Commons. It has been accepted for inclusion in Class, Race and Corporate Power by an authorized administrator of FIU Digital Commons. For more information, please contact [email protected]. Modern Monetary Theory: A Marxist Critique Abstract Compiled from a series of blog posts which can be found at "The Next Recession." Modern monetary theory (MMT) has become flavor of the time among many leftist economic views in recent years. MMT has some traction in the left as it appears to offer theoretical support for policies of fiscal spending funded yb central bank money and running up budget deficits and public debt without earf of crises – and thus backing policies of government spending on infrastructure projects, job creation and industry in direct contrast to neoliberal mainstream policies of austerity and minimal government intervention. Here I will offer my view on the worth of MMT and its policy implications for the labor movement. First, I’ll try and give broad outline to bring out the similarities and difference with Marx’s monetary theory.
    [Show full text]
  • 1 the Scientific Illusion of New Keynesian Monetary Theory
    The scientific illusion of New Keynesian monetary theory Abstract It is shown that New Keynesian monetary theory is a scientific illusion because it rests on moneyless Walrasian general equilibrium micro‐foundations. Walrasian general equilibrium models require a Walrasian or Arrow‐Debreu auction but this auction is a substitute for money and empties the model of all the issues of interest to regulators and central bankers. The New Keynesian model perpetuates Patinkin’s ‘invalid classical dichotomy’ and is incapable of providing any guidance on the analysis of interest rate rules or inflation targeting. In its cashless limit, liquidity, inflation and nominal interest rate rules cannot be defined in the New Keynesian model. Key words; Walrasian‐Arrow‐Debreu auction; consensus model, Walrasian general equilibrium microfoundations, cashless limit. JEL categories: E12, B22, B40, E50 1 The scientific illusion of New Keynesian monetary theory Introduction Until very recently many monetary theorists endorsed the ‘scientific’ approach to monetary policy based on microeconomic foundations pioneered by Clarida, Galí and Gertler (1999) and this approach was extended by Woodford (2003) and reasserted by Galí and Gertler (2007) and Galí (2008). Furthermore, Goodfriend (2007) outlined how the ‘consensus’ model of monetary policy based on this scientific approach had received global acceptance. Despite this consensus, the global financial crisis has focussed attention on the state of contemporary monetary theory by raising questions about the theory that justified current policies. Buiter (2008) and Goodhart (2008) are examples of economists who make some telling criticisms. Buiter (2008, p. 31, fn 9) notes that macroeconomists went into the current crisis singularly unprepared as their models could not ask questions about liquidity let alone answer them while Goodhart (2008, p.
    [Show full text]
  • Nber Working Paper Series David Laidler On
    NBER WORKING PAPER SERIES DAVID LAIDLER ON MONETARISM Michael Bordo Anna J. Schwartz Working Paper 12593 http://www.nber.org/papers/w12593 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 October 2006 This paper has been prepared for the Festschrift in Honor of David Laidler, University of Western Ontario, August 18-20, 2006. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. © 2006 by Michael Bordo and Anna J. Schwartz. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. David Laidler on Monetarism Michael Bordo and Anna J. Schwartz NBER Working Paper No. 12593 October 2006 JEL No. E00,E50 ABSTRACT David Laidler has been a major player in the development of the monetarist tradition. As the monetarist approach lost influence on policy makers he kept defending the importance of many of its principles. In this paper we survey and assess the impact on monetary economics of Laidler's work on the demand for money and the quantity theory of money; the transmission mechanism on the link between money and nominal income; the Phillips Curve; the monetary approach to the balance of payments; and monetary policy. Michael Bordo Faculty of Economics Cambridge University Austin Robinson Building Siegwick Avenue Cambridge ENGLAND CD3, 9DD and NBER [email protected] Anna J. Schwartz NBER 365 Fifth Ave, 5th Floor New York, NY 10016-4309 and NBER [email protected] 1.
    [Show full text]
  • Money and Banking in a New Keynesian Model∗
    Money and banking in a New Keynesian model∗ Monika Piazzesi Ciaran Rogers Martin Schneider Stanford & NBER Stanford Stanford & NBER March 2019 Abstract This paper studies a New Keynesian model with a banking system. As in the data, the policy instrument of the central bank is held by banks to back inside money and therefore earns a convenience yield. While interest rate policy is less powerful than in the standard model, policy rules that do not respond aggressively to inflation – such as an interest rate peg – do not lead to self-fulfilling fluctuations. Interest rate policy is stronger (and closer to the standard model) when the central bank operates a corridor system as opposed to a floor system. It is weaker when there are more nominal rigidities in banks’ balance sheets and when banks have more market power. ∗Email addresses: [email protected], [email protected], [email protected]. We thank seminar and conference participants at the Bank of Canada, Kellogg, Lausanne, NYU, Princeton, UC Santa Cruz, the RBNZ Macro-Finance Conference and the NBER SI Impulse and Propagations meeting for helpful comments and suggestions. 1 1 Introduction Models of monetary policy typically assume that the central bank sets the short nominal inter- est rate earned by households. In the presence of nominal rigidities, the central bank then has a powerful lever to affect intertemporal decisions such as savings and investment. In practice, however, central banks target interest rates on short safe bonds that are predominantly held by intermediaries.1 At the same time, the behavior of such interest rates is not well accounted for by asset pricing models that fit expected returns on other assets such as long terms bonds or stocks: this "short rate disconnect" has been attributed to a convenience yield on short safe bonds.2 This paper studies a New Keynesian model with a banking system that is consistent with key facts on holdings and pricing of policy instruments.
    [Show full text]
  • Unemployment Insurance: a Guide to Collecting Benefits in the State of Connecticut
    Unemployment Insurance: A Guide to Collecting Benefits in the State of Connecticut DISPONIBLE EN ESPAÑOL Visite su oficina local del Departamento de Trabajo o visite Su oficina local del Departamento de Trabajo You are responsible for understanding your rights and responsibilities outlined in this booklet. Please be sure to read it in its entirety. ¡IMPORTANTE! Usted es responsable de comprender sus derechos y responsabilidades que se describen en este folleto. ¡Asegúrese de leerlo todo! . Visit our Unemployment Website: www.FileCTUI.com 1 | P a g e Table of Contents General Information to the Unemployment Insurance Claimant ........................................................................................... 4 What Is Unemployment Insurance? ................................................................................................................................... 4 Who is Protected by Unemployment Insurance? ............................................................................................................... 4 Your Legal Right to File a Claim ........................................................................................................................................... 4 How Do I Apply for Unemployment Insurance Benefits? ....................................................................................................... 5 Filing an Initial (New) Claim ............................................................................................................................................ 5 Reopening
    [Show full text]
  • Monetary Cross-Checking in the New-Keynesian Model 1
    WORKING PAPER SERIES NO 1191 / MAY 2010 MONEY IN MONETARY POLICY DESIGN MONETARY CROSS- CHECKING IN THE NEW-KEYNESIAN MODEL b y Guenter W. Beck and Volker Wieland WORKING PAPER SERIES NO 1191 / MAY 2010 MONEY IN MONETARY POLICY DESIGN MONETARY CROSS-CHECKING IN THE NEW-KEYNESIAN MODEL 1 by Guenter W. Beck and Volker Wieland 2 NOTE: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. In 2010 all ECB publications feature a motif taken from the €500 banknote. This paper can be downloaded without charge from http://www.ecb.europa.eu or from the Social Science Research Network electronic library at http://ssrn.com/abstract_id=1507514. 1 Wieland thanks the European Central Bank for support as Duisenberg Research Fellow while working on this paper. 2 Both authors: Goethe University of Frankfurt. House of Finance, Grueneburgplatz 1, 60323 Frankfurt am Main, Germany; Beck: Phone: ++49-69-79833834; Wieland: Phone: ++49-69-79833907; e-mail: [email protected], [email protected] © European Central Bank, 2010 Address Kaiserstrasse 29 60311 Frankfurt am Main, Germany Postal address Postfach 16 03 19 60066 Frankfurt am Main, Germany Telephone +49 69 1344 0 Internet http://www.ecb.europa.eu Fax +49 69 1344 6000 All rights reserved. Any reproduction, publication and reprint in the form of a different publication, whether printed or produced electronically, in whole or in part, is permitted only with the explicit written authorisation of the ECB or the author(s).
    [Show full text]
  • 13. Chartalism, Metallism, and Key Currencies
    13. Chartalism, Metallism, and Key Currencies In terms of our hierarchy of money and credit, we have so far been paying most attention to currency and everything below it, so our attention has been on two of the four prices of money, namely par and the interest rate. Today we begin a section of the course that looks into forms of money that lie above currency in the hierarchy, and hence at a third price of money, the rate of exchange. Metallism Under a gold standard, the extension of our analysis would be straightforward. Gold is the ultimate international money, an asset that is no one’s liability. Under a gold standard, each currency has its own mint par, and the exchange rate is determined by the ratio of mint pars. In this view of the world, the multiple national (state) systems relate to one another not directly (money to money) but only indirectly (credit to credit) through the international (private) system. Each national currency has an exchange rate with the international money and it is that pattern of exchange rates that sets up a pattern of exchange rates between national currencies. Dollar = x ounces of gold Pound = y ounces of gold Dollar = x/y Pounds [S(1/x)=(1/y)] Exchange Rate in a Metallic Standard World Gold X oz. Y oz. Dollar S=X/Y Pound Deposits Deposits Securities Securities From this point of view, the central bank is a banker’s bank, holding international reserves that keep the national payment system in more or less connection with the international system.
    [Show full text]
  • Inside-Money in the New Keynesian Model
    Inside-money in the New Keynesian model Cristina Manea∗ † December 4, 2019 Incomplete Draft Link to the latest version Abstract The textbook New Keynesian framework has become a common tool for monetary policy analysis in central banks. Policymakers are nonetheless often concerned that this framework abstracts away from endogenous money creation, and lacks realism. To address this concern, I introduce endogenous money creation by the private banking sector (like deposits), or “inside money”, into the textbook framework. I find that the new “inside money” model has the same equilibrium representation as the textbook ‘money-less” one, and hence transmission and optimal design of monetary policy in the two models are identical. Keywords: New Keynesian model, inside-money, cashless, inside-liquidity banking theory JEL Class.: E2 – E3– E4 ∗Universitat Pompeu Fabra. Email: [email protected]: https://www.upf.edu/web/econ/manea-cristina †I thank my PhD advisor Jordi Gali and Piti Disyatat for comments. 1 1 Introduction A number of economists have expressed concerns over the lack of explicit account of banks’ monetary role in New Keynesian models widely used for monetary policy analysis. These concerns are expressed on two dimensions. On a first dimension, they regard the monetary fundamentals of cashless versions of these models, because they do not explicitly model the role of bank deposits (’inside-money’) in transactions. For instance, Goodfriend and McCallum (2007) consider the New Keynesian framework in Bernanke, Gertler and Gilchrist (1999) as ’fundamentally non-monetary’ because ’it does not recognize the existence of a demand for money that serves to facilitate transactions’.
    [Show full text]
  • Inside and Outside Money
    Federal Reserve Bank of Minneapolis Research Department Staff Report 374 May 2006 Inside and Outside Money Ricardo Lagos Federal Reserve Bank of Minneapolis and New York University ABSTRACT __________________________________________________________________________ A distinction is drawn between outside money—money that is either of a fiat nature or backed by some asset that is not in zero net supply within the private sector—and inside money, which is an asset backed by any form of private credit that circulates as a medium of exchange. _____________________________________________________________________________________ *This paper has been prepared for the New Palgrave Dictionary of Economics, 2nd edition. I thank Narayana Kocherlakota and Warren Weber for comments. I also thank the C.V. Starr Center for Applied Economics at New York University for financial support. The views expressed herein are those of the author and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System. Inside and Outside Money Definitions Money is an asset that serves as a medium of exchange. Outside money is money that is either of a fiat nature (unbacked) or backed by some asset that is not in zero net supply within the private sector of the economy. Thus, outside money is a net asset for the private sector. The qualifier outside is short for (coming from) outside the private sector. Inside money is an asset representing, or backed by, any form of private credit that circulates as a medium of exchange. Since it is one private agent’s liability and at the same time some other agent’s asset, inside money is in zero net supply within the private sector.
    [Show full text]
  • Intermediate Macroeconomics: New Keynesian Model
    Intermediate Macroeconomics: New Keynesian Model Eric Sims University of Notre Dame Fall 2012 1 Introduction Among mainstream academic economists and policymakers, the leading alternative to the real business cycle theory is the New Keynesian model. Whereas the real business cycle model features monetary neutrality and emphasizes that there should be no active stabilization policy by govern- ments, the New Keynesian model builds in a friction that generates monetary non-neutrality and gives rise to a welfare justification for activist economic policies. New Keynesian economics is sometimes caricatured as being radically different than real business cycle theory. This caricature is unfair. The New Keynesian model is built from exactly the same core that our benchmark model is { there are optimizing households and firms, who interact in markets and whose interactions give rise to equilibrium prices and allocations. There is really only one fundamental difference in the New Keynesian model relative to the real business cycle model { nominal prices are assumed to be \sticky." By \sticky" I simply mean that there exists some friction that prevents Pt, the money price of goods, from adjusting quickly to changing conditions. This friction gives rise to monetary non-neutrality and means that the competitive equilibrium outcome of the economy will, in general, be inefficient. New Keynesian economics is to be differentiated from \old" Keynesian economics. Old Keyne- sian economics arose out of the Great Depression, adopting its name from John Maynard Keynes. Old Keynesian models were typically much more ad hoc than the optimizing models with which we work and did not feature very serious dynamics.
    [Show full text]