Copyright 2018 Montclair State UniversityModule 7: Central BanksECON 562Macroeconomic Analysis &Public Policy
IntroductionCentral BanksThe Federal Reserve (The Fed)Monetary PolicyMonetary Aggregates
ECON 562Macroeconomic Analysis & Public PolicyModule 7a: Central Banks
Central Banks•Central banks are the monetaryauthorities within national governments.•They have policy, regulatory, andoperational functions.•The first two central banks were theSwedish Riksbank (1668) and the Bankof England (1694).•The current central banking system ofthe United States was established in1913.
ECON 562Macroeconomic Analysis & Public PolicyModule 7b: The Federal Reserve (The Fed)
The Federal ReserveThe Federal Reserve System has 3 parts:1.Federal Reserve Board of Governors ("FederalReserve Board")2.12 Regional Federal Reserve Banks, one foreach "district"3.The Federal Open Market Committee ("FOMC")The System has 3 responsibilities:4.Provide financial services (i.e. check processing)5.Supervise and regulate banks6.Conduct monetary policy
The Federal ReserveBank supervision is fundamental for a sound financial system.The U.S. government insures deposits. Bank regulators aresupposed to ensure that banks do not take "excessive" risks lendingthese deposits.The 2007 financial crisis has illustrated (again) that banking panicsappear to precede bad economic outcomes. Appropriate banksupervision reduces the probability of a banking panic.