Begrippen International Monetary Relations and Policy

Dual mandate (Fed): The Fed's legal goals: maximum employment and stable prices (and moderate long-term interest rates). Target: 2% PCE inflation over the longer run.
Primary objective (ECB): Price stability; without prejudice to it, supporting the EU's general economic policies. Target: 2% HICP inflation over the medium term, symmetric.
Federal funds rate: Rate on overnight, unsecured interbank lending of reserves in the US. The FOMC sets a 25 bp target range; the market rate is the EFFR.
FOMC: Federal Open Market Committee: sets US monetary policy; 8 meetings a year, 12 voting members.
Deposit facility rate (DFR): ECB rate on overnight deposits by banks; the floor of the corridor and the signal of the policy stance (2.50% in Sept. 2026).
Main refinancing operations rate (MRO): ECB rate on its weekly refinancing operations (2.65% in Sept. 2026).
Marginal lending facility (MLF): ECB rate at which banks can always borrow overnight against collateral; the ceiling of the corridor (2.90%).
€STR: Euro short-term rate: the euro-area market rate, slightly below the DFR because of the leaky floor.
EFFR: Effective federal funds rate: the US market rate, published daily by the New York Fed, inside the target range.
IORB: Interest on reserve balances: the rate the Fed pays on banks' reserves, inside the target range.
ON RRP: Overnight reverse repo facility: the Fed's second, lower floor for non-banks such as money market funds; bottom of the range.
Standing Repo Facility (SRF): Fed facility at the top of the range that acts as the ceiling.
Interest rate corridor: The band between the central bank's deposit rate (floor) and lending rate (ceiling) within which arbitrage keeps the market rate.
Leaky floor: The market rate falls slightly below the deposit rate because non-banks cannot deposit at the central bank and lend to banks more cheaply.
Ample reserves regime: Since QE, reserves are so large that changing their quantity no longer moves the rate; the central bank sets the rate directly through the interest it pays.
Open market operations: Buying and selling government bonds to change the quantity of reserves; how the Fed hit its target before 2008.
Taylor rule: i = r* + π + 0.5(π − π*) + 0.5y: the policy rate responds to inflation and the output gap (Taylor, 1993).
Neutral real interest rate (r*): The real rate consistent with output at potential and stable inflation; 2% in Taylor (1993), lower in recent estimates (Laubach-Williams, HLW).
Output gap: The percentage deviation of GDP from potential output.
Taylor principle: The coefficient on inflation must exceed 1, so the real rate rises when inflation rises; condition for a unique, stable equilibrium in the New Keynesian model.
Interest rate smoothing: Central banks adjust rates gradually: i = ρi(t−1) + (1 − ρ)i(Taylor), typically ρ ≈ 0.85.
Zero lower bound (ZLB): The policy rate cannot (easily) go below about zero, even when the Taylor rule prescribes a negative rate.
PCE and HICP: PCE: the US personal consumption expenditures price index (Fed target). HICP: harmonised index of consumer prices (ECB target). Core excludes food and energy.
Global imbalances: The uneven distribution of external debts and credits: large net debtors (US) and large net creditors (Germany, Japan, China).
Balance of payments: Record of a country's international transactions: current account, financial account and capital account.
Current account (CA): Trade balance + income balance + net unilateral transfers; a flow that measures how much a country borrows from the rest of the world.
Financial account: Transactions in assets between residents and non-residents: FDI, portfolio investment, other investment and official reserves; shows how the CA is financed.
Capital account: Capital transfers (e.g. debt forgiveness, investment grants) and non-produced non-financial assets; negligible for the US, not for Greece (EU funds).
Balance-of-payments identity: Current account + capital account = financial account.
Statistical discrepancy: The gap between the measured sides of the balance of payments; a large, persistent one often hides unrecorded capital flows.
Trade balance (TB): Exports minus imports of goods and services (goods balance + services balance).
Income balance (primary income): Net investment income plus net international payments to employees.
Net investment income (NII): Interest, dividends and profits received on foreign assets minus those paid on foreign liabilities.
Net unilateral transfers (secondary income): Gifts received minus gifts given: personal remittances and government transfers.
NIIP: Net international investment position: foreign assets minus foreign liabilities (A − L); a stock. NIIP(t) = NIIP(t−1) + CA(t) without valuation changes.
Valuation changes: Changes in the market value of foreign assets and liabilities from exchange rates and asset prices: ΔNIIP = CA + valuation changes.
Hypothetical NIIP: The 1976 NIIP plus all later current account balances: the position without valuation changes.
NIIP-NII paradox: The US has a negative NIIP but positive net investment income.
Dark matter hypothesis: The true US NIIP is positive because intangible capital in US FDI abroad is not recorded, while its income is: TNIIP = NII / r.
Exorbitant privilege: The US holds risky, high-yield foreign assets and owes safe, low-yield liabilities (Treasuries), so it earns more than it pays.
Inverted paradox: The mirror image of the US: a positive NIIP and negative NII, as in China (low-yield reserves, high-yield FDI liabilities).
Trade triangulation: Rerouting trade through third countries (e.g. Vietnam) to avoid bilateral tariffs, which shifts but does not shrink the total deficit.
New Keynesian (NK) model: A model of the economy derived from households' and firms' choices, with monopolistic competition and sticky prices, so monetary policy affects output in the short run.
Money neutrality: With flexible prices a change in the nominal rate is matched by expected inflation; the real rate and output do not move.
Sticky prices: Prices that adjust only slowly because changing them is costly; they give the central bank control over the real rate.
Monopolistic competition: Each firm sells a differentiated good and has some market power to set its price.
Cashless economy: Model without money in utility or the budget constraint; the central bank sets the interest rate and money adjusts in the background.
Steady state: The point where all variables are constant and there are no shocks.
Log-linearisation: A linear approximation of the model around the steady state; ẑ_t ≡ ln Z_t − ln Z̄ is the percentage deviation.
Discount factor (β): How much the household values future utility; about 0.99 per quarter. ρ ≡ −ln β is the discount rate.
Intertemporal elasticity of substitution (1/σ): How strongly consumption responds to the real interest rate; also the slope of the IS curve.
Frisch elasticity of labor supply (1/φ): How strongly hours respond to the real wage.
Euler equation: C_t^(−σ) = β(1 + i_t)E_t[C_{t+1}^(−σ)P_t/P_{t+1}]: the consumption-savings condition; linearised, c_t = E_tc_{t+1} − (1/σ)(r_t − ρ).
Labor supply condition: w_t = σc_t + φn_t: the real wage equals the marginal rate of substitution between leisure and consumption.
Real interest rate: r_t = i_t − E_tπ_{t+1}: the nominal rate minus expected inflation.
CES (Dixit-Stiglitz) aggregator: Combines differentiated varieties into one final good with a constant elasticity of substitution ε.
Demand for good j: Y_jt = (P_jt/P_t)^(−ε)Y_t: demand falls when the relative price rises; ε is the price elasticity.
Real marginal cost: mc_t = w_t/A_t: the cost of producing one more unit; the key link between the real economy and inflation.
Markup: M = ε/(ε − 1): the factor by which a firm with flexible prices sets its price above marginal cost (ε = 6 gives 20%).
Menu costs: Any cost of changing a price; fixed (independent of the size) or convex (larger changes cost disproportionately more).
Rotemberg adjustment cost: (ψ/2)(P_jt/P_j,t−1 − 1)²Y_t: a quadratic cost of changing prices that makes firms adjust gradually.
Calvo pricing: Each period a fraction θ of firms cannot reset its price; gives the same linear Phillips curve with coefficient (1 − θ)(1 − βθ)/θ.
Stochastic discount factor: Q_t,t+1 = β(C_{t+1}/C_t)^(−σ): how households, the owners of firms, value future profits.
Natural output: y^n_t = ((1 + φ)/(σ + φ))a_t: output if prices were flexible.
Output gap: x_t = y_t − y^n_t: how far output is from its natural level; marginal cost is (σ + φ)x_t.
New Keynesian Phillips curve (NKPC): π_t = βE_tπ_{t+1} + κx_t + u_t: inflation depends on expected inflation, the output gap and cost-push shocks.
Slope of the Phillips curve (κ): κ = (ε − 1)(σ + φ)/ψ; small in the data (flat Phillips curve).
Cost-push shock: A shock to desired markups, wages or energy costs that raises inflation without changing natural output.
Hybrid Phillips curve: An NKPC with lagged inflation added to match the persistence of inflation in the data (Galí and Gertler, 1999).
Dynamic IS curve: x_t = E_tx_{t+1} − (1/σ)(i_t − E_tπ_{t+1} − r^n_t): the demand side of the NK model.
Natural rate of interest: The real rate that keeps output at its natural level; r* in the Taylor rule estimates it.
Transmission mechanism: Nominal rate → (sticky prices) → real rate → (IS) → output gap → (NKPC) → inflation, with expectations feeding back.
Divine coincidence: Without cost-push shocks, stabilising inflation also closes the output gap (Blanchard and Galí, 2007).
Cost of disinflation: Inflation falls only when output falls below natural; the flatter the Phillips curve, the higher the output cost.