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 monetary authorities within national governments.•They have policy, regulatory, and operational functions.•The first two central banks were the Swedish Riksbank (1668) and the Bank of England (1694).•The current central banking system of the United States was established in 1913.
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 ("Federal Reserve Board")2.12 Regional Federal Reserve Banks, one for each "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 are supposed to ensure that banks do not take "excessive" risks lending these deposits. The 2007 financial crisis has illustrated (again) that banking panics appear to precede bad economic outcomes. Appropriate bank supervision reduces the probability of a banking panic.