4 - monetary policy instruments [handout].pdf - Econ 308...

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Econ 308 - Money and Banking Monetary policy instruments Richard Walker Northwestern University June 23, 2015 1
Monetary policy instruments 1 Introduction Endogeneity of M The Federal Reserve 2 The deposit creation process Definitions The lending-deposit cycle Leakages 3 Monetary policy tools Overview The money multiplier The market for reserves 2
Introduction 1 Introduction Endogeneity of M The Federal Reserve 2 The deposit creation process Definitions The lending-deposit cycle Leakages 3 Monetary policy tools Overview The money multiplier The market for reserves 3
Introduction Endogeneity of M 1 Introduction Endogeneity of M The Federal Reserve 2 The deposit creation process Definitions The lending-deposit cycle Leakages 3 Monetary policy tools Overview The money multiplier The market for reserves 4
Introduction Endogeneity of M M is not a choice variable after all Theme from money demand section: M unstable Authorities consistently surprised by movements in monetary aggregates na¨ ıve view of monetary policy implicit in standard IS-LM analysis incorrect Questions for this section: 1 What does determine M ? 2 What does the Fed choose? Note: this set of slides will be concerned with the tools of monetary policy in ‘normal’ times 5
Introduction Endogeneity of M The punchlines: 1 What does determine M ?
2 What does the Fed choose?
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Introduction The Federal Reserve 1 Introduction Endogeneity of M The Federal Reserve 2 The deposit creation process Definitions The lending-deposit cycle Leakages 3 Monetary policy tools Overview The money multiplier The market for reserves 7
Introduction The Federal Reserve The Federal Reserve System is the US central bank of the United States, with following duties: 1 conducting monetary policy by influencing the monetary and credit conditions 2 providing financial services to the U.S. government and to depository institutions; operating the nations payments system 3 supervising and regulating banking institutions 4 maintaining the general stability of the financial system and containing systemic risk that may arise in financial markets 8
Introduction The Federal Reserve Fed structure Truly a federal structure: Board of Governors in D.C. 12 regional Federal Reserve Banks The Federal Open Market Committee FOMC composed of the 7 members of the Board of Governors, plus 5 of the 12 Reserve Bank presidents. All the regional presidents participate in FOMC discussions, but only the 5 committee members vote on policy decisions.

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