Adaptive expectations whenever we believe the economy is full of inefficiencies, and expectations are

thus eogenous, sticky o constant (thus based on historical levels)

balance sheet recessions are economic recessions triggered by a financial crash
Banking privilege = difference between the central bank rate on deposits and zero
Banking reserve risk premium difference between the overnight rate and the central bank rate on
deposits
Banking reserve supply glut = difference between the central bank rate on loans and the overnight rate
Cash = monetary base - central bank liabilities - held by the public
Central bank corridor = difference between the central bank rate on loans and that on deposits
Delphi assumption = In the new Fisherian approach the design of a forward guidance policy is based on
the “Delphi assumption” : the central bank announcement implicitly communicates that the economy
will follow to be weak , and the agents trust such as implicit information
Difference between recession and stagnation is that the recession is a fall in GDP in the two subsequent
quarters, while stagnation is negligible or no economic growth
drivers of financial innovations are = creativity + ∆ technology +∆rules
effects of deregulation of the financial industry were 1) interconnection 2) dimension 3) complexity
Equity prize = today equity price is directly correlated with tomorrow's expected value of the asset and
inversely related to the real interest rate
expectations accelerator = is a measure of how much consumption is sensitive to expectations in
inflation
expectations by learning = expectations are temporarily/partially exogenous as agents can learn
prgressively how the economic systems works from time to time
finance = production and distirbution of leverage contracts
financial regulation = rules setting
financial supervision = rules enforcement
Fiscal policy multiplier = measures the output growth triggered by a fiscal policy action
fischer equation = in the equilibrium the nominal interest rate is the sum of the natural interest rate
plus the inflation rate
Forward Guidance = providing information about the future path of the interest rates and/or the money
aggregates
Given a CB setting two policy rates - deposit rate (CBD) and lenidng rate(CBL), with a corridor between
the two. Floor system: the CB reduces the corridor, maintaining the CBD in the positive territory;
Corridor system = the CB reduces both rates and can explore the negative territory
Given the fisher equation nominal interest rate i any real world interest rate ii will be equal to ii= a + bi +
e where a= risk/liquidity premium, b = pass-through coefficient, e = stochastic term
good disinflation is the case of output growth with decreasing prices
Inductive expectations = agents can progressively learn how the economic system works. In other words
their expectations are inductive, I.e. they are temporarily or partially exogenous
Inflation sacrifice ratio = given an AD economic policy action, it measures the ratio between the inflation
acceleration and the output growth triggered by such as action
inflation surprise = difference between actual inflation and expected inflation
key assumption in the structural regulation approach: Bank and financial risks can be unpredictable
key assumption of the prudential regulation approach is that Bank and Financial risks are ever
predictable and measurable
liquidity trap = situation in which monetary policy is completely ineffective as people are indifferent
between holding money and investing in bonds ( they prefer to keep them and wait for better
opportunities). monetary policy has no nominal / real effect and AD is independent from changes in the
interest rate (monetary policy)
monetary base = central bank liabilities
Monetary policy multiplier = it measures the output growth triggered by a monetary policy action
monetary stability = when the price level does not alter nor firm nor household decisions
NICE period (GM) = Non inflationary and consistently expansionary period
NIRP = negative interest rate policy to disincentivize banks from leaving money in the CB
Odysseus assumption = new Keynesian approach the design of a forward guidance policy is based on
the “Odysseus assumption”: the central bank announcement communicates a credible commitment that
inflation rate will raise, and the agents trust such as annoucements
Okun’s law relationship between unemployment rate and output growth
Open market operations are central bank operations as buyer or sellers in the financial market
Open mouth operations are central bank announcements on the future path of the interest
rate/monetary agreement
Output Gap = it is the difference between actual output growth and potential output growth, which is
the maximum output growth sustainable without inflation risks
Overnight interest rate os the market clearing price in the interbank market
Phillips curve is a curve which puts in relation unemployment and inflation
QUANTITATIVE EASING = it is an unconventional monetary policy which constitutes in CB open market
operation to increase the money supply in the mkt
rational expectations when rational agents understand how the economic system works. We can thus
predict gvmt and cb actions ==> if expectations are rational no impact of policies on the state of
economy
real interest rate = the rate that prevails in the medium-long run when the economy is at full
employment, i.e. output growth potwntial
Recession = a fall in gdp in the two subsequent quarters
shadow banking = non banking firms which perform banking activities
stag-deflation= recession with deflation
stagflation = recession with inflation
Stagnation = negligible or no economic growth
sub-prime borrower is a NINJA borrower = no income, no job, no asset borrower
ZIRP POLICY = zero interest rate monetary policy