Class 12 - Econ 350 U.S. Financial Systems, Markets and...

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Econ 350 U.S. Financial Systems, Markets and Institutions Class 12 Econ 350 U.S. Financial Systems, Markets, and Institutions Class 12: Central Banks and the Federal Reserve System Welcome to Part IV! Here we focus on the implementation of monetary policy. This morning we examine central banks and the structure of the Federal Reserve System. We look at how the historical circumstances surrounding the creation of the Fed have helped to contribute to its structure, and how this structure has influenced the current implementation of monetary policy. For the rest of this Part, we will explore several models of monetary policy. Remember from Class 11 that the creation of the Fed was an extremely political process replete with much debate and compromise. The Panics of 1893, and especially 1907, had highlighted the need for a central bank to stabilize the financial system. The National Monetary Commission, under the direction of Senator Nelson Aldrich, had recommended a strong central bank with headquarters in New York City, which would be controlled by prominent bankers. Many progressives, led by William Jennings Bryan, were against a central bank controlled by banking interests. They felt that citizens appointed by the government would do a much better job in serving the public interest than elite bankers. After Woodrow Wilson was elected President, the debate continued for another year until the Federal Reserve Act of 1913. The structure of the Federal Reserve, as we will see, is very much a result of the compromises between these two factions, those who wanted banker control vs. those who wanted public control. Course Objectives After today’s class, you should: -- know the roles of central banks in different countries around the world. -- have an appreciation of how the current structure of the Federal Reserve was influenced by political compromises of 1913. -- know the different components of the Federal Reserve System, including the FOMC, Board of Governors, member banks, and Federal Reserve Banks. -- understand the composition and role of the FOMC. -- understand the composition and role of the twelve district banks and their Boards of Directors. -- know the three tools of monetary policy and which part of the Fed is responsible for each. Central Banks Around the World The United States was fairly late to adopt a central bank compared to most other countries. The first attempts at central banking in the United States, the First Bank of the United States in 1791 and the Second Bank of the United States in 1816, were not able to outlast their original twenty-year charters. For most of the 1800s, the United States was without a central bank. 102
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Econ 350 U.S. Financial Systems, Markets and Institutions Class 12 Most other countries, on the other hand, adopted a central bank much earlier, as shown by the following table: Table 12-1 Central Banks of Selected Countries Country Name of Bank Year of Origin Sweden Riksbank 1668 Great Britain Bank of England 1694
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This note was uploaded on 05/09/2009 for the course ECON 350 taught by Professor Christianson during the Spring '08 term at Binghamton University.

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Class 12 - Econ 350 U.S. Financial Systems, Markets and...

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