Week 3 Lecture - Week 3. Monetary policy 1302AFE Money,...

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Week 3. Monetary policy 1302AFE Money, Banking and Finance Chapter 3 Monday 11 August 2008
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Last Week. . Origins of the central banking system Regulatory authorities RBA APRA ASIC History, Responsibilities, Organisational Structure Bank of International Settlements (BIS) Central banking systems of other nations
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This Week. . The objective of this lecture is to help you be able to: Explain how the RBA measures the money supply Explain how the RBA influences the level of interest rates in the economy Discuss the objectives of the RBA in conducting monetary policy Explain how the RBA’s policies are transmitted through the economy and affect economic activity.
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The RBA and Exchange Settlement Funds (ESF) The RBA can control the liquidity in the financial system. It does so through managing the ESF held by banks at the RBA in exchange settlement accounts (ESAs). ESF are the funds used to settle obligations among institutions and between institutions and the RBA. By controlling ESF, the RBA is able to control the money supply.
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Measures of the Money Supply The RBA can measure money supply according to three ‘definitions’: M1: currency + current accounts at depository institutions. M3: M1 + all other bank deposits of the private non-bank sector. Broad money: M3 + borrowings from the private sector by non-bank financial institutions (NBFIs) — currency and bank deposits of NBFIs. Money Base: currency in the private sector + ESA deposits and RBA liabilities to the private sector
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Money Supply Changes The money supply (MS) can change as a result of: Government taxes and spending Government transactions in CGS and foreign exchange (undertaken by the RBA on behalf of the government).
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Taxes paid MS Gov. spending MS CGS issue MS CGS buy-back MS Gov sells forex MS Gov buys forex MS Money Supply Changes
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The RBA influences the whole interest rate structure of the economy by controlling the cash rate. The cash rate is the unsecured overnight
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This note was uploaded on 06/09/2009 for the course ACCOUNTING 1203AFE taught by Professor Ms.mirellamalin during the Three '08 term at Griffith.

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Week 3 Lecture - Week 3. Monetary policy 1302AFE Money,...

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