3323ch20

3323ch20 - Chapter 20 The Instruments of Central Banking...

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Chapter 20 The Instruments of Central Banking Federal Reserve Tools Transmission Mechanism Tools C O.M.O / Economy →→→ D.R. ? R E ? MS ? I ? W ? Y R.R. ? / Multiplier I Capital Investment Recognition Lag Action Lag Impact Lag * - Quantitative tools - Reserve Requirement - LRA vs CRA - Payment System - Simple multiplier - Deposit Expansion Discount Rate - Lags market rates - Not permanent source of funds - Used for - Adjustment Credit - Seasonal Credit - Extended Credit - Open Market Operation - Temporary purchase-repurchase agreements - Temporary sale - matched sale-purchase—reverse repos - Temporary purchase-repurchase agreement - Outright Sales/Purchases - Purchase/ Sale of Sec. - New York DESK - OMO Conducted through "DESK" - Receives a reserve position of banking system as of the night before - Key indicator of whether the quantity of reserves is high or low relative to demand is the Fed Fund rates —if many banks have excess reserves —Fed Fund rate will fall since no one is buying
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3323ch20 - Chapter 20 The Instruments of Central Banking...

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