A: In economics the distinction between endogand exog is used in three different senses: control, theoretical, andstatistical. Only the econometricians reading this care about the last one soI’ll leave it. In the control sense it means the govt can “control” thevariable: ie control the money supply, control the interest rate, control theprice level. MMT shares with the “endogenous money” or “horizontalist”approaches the view that the CB cannot control the money supply or bankreserves. Instead the CB must accommodate the demand for reserves. HOWEVER thesetheories were formulated back when the interest rate paid on reserves was zerobut the Fed’s target overnight interest rate was nonzero. Excess reserves drovethe market (fed funds) rate below zero so the Fed would have to drain reservesby selling Treasuries. But now the Fed has a near zero interest rate target(like Japan) and so can leave excess reserves in the system and pay 25 basispoints on them and the market rate remains near 25 basis points. So you could say that with QE the Fed“exogenously” increases bank reserves. There is an asymmetry, though, becausethe Fed can leave banks full of excess reserves but cannot leave them shortreserves—which would drive the market rate above the target. On the other hand,the CB’s target interest rate is clearly exog in the control sense: the Fed canset its target at 25 bp, or raise it at the next meeting to 150 bp. Finally,the control sense and the theoretical sense are related but not identical. Letus say the US had a fixed exchange rate and used the interest rate policy tohit the peg. We can say the interest rate is exogenously controlled (set by theFed) but it is not theoretically exog because the overriding policy is to pegthe exchange rate.
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