Econ310_Notes20101028

Econ310_Notes20101028 - M onetary Policy Tools (10/28/2010)...

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Monetary Policy Tools (10/28/2010) Econ 310- 004 Definitions federal funds rate – interest rate to borrow from other banks basis point – 1/100 of 1%; 0.01% = 1 basis point float – temporary net increase in the total amount of reserves: the Federal Reserve system credits a check to the depositing bank before it debits the withdrawing bank (affects monetary base) treasury deposits – temporary net decrease in the total amount of reserves: U.S. Treasury takes deposits out of banks and deposits them with the Federal Reserve instead (affects monetary base) repurchase agreement (repo) – temporary open market purchase matched sale purchase transaction (reverse repo) – temporary open market sale term auction facility – discount loans via competitive auctions (less stigma for borrowing banks relative to normal discount window) term securities lending facility – lend treasury securities to primary dealers for terms longer than overnight (to supply more securities for collateral) Principles The federal funds rate is the primary target for monetary policy from the Federal Reserve. It is not set directly – rather, it is indirectly manipulated using other policy tools.
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This note was uploaded on 01/26/2011 for the course ECON 310 taught by Professor Staff during the Fall '08 term at George Mason.

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Econ310_Notes20101028 - M onetary Policy Tools (10/28/2010)...

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