DSST Money & Banking Part 1

Nonborrowed reserve targets have been considered as

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targets will permit effective control of the quantity of money supplied. Nonborrowed Reserve Targets:  have been considered as an alternative operating target since  problems of false signals inducing the FED to take inappropriate actions when using interest rate targets.  FED can hit its nonborrowed reserve target and still miss its intermediate money supply targets because  of:  Failure to control the monetary base, and unexpected changes in the base multiplier.
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Borrowed Reserves Targets:  Since borrowed reserves are part of the monetary base, the greater the  amount of borrowing, the greater the quantity of base and therefore the money stock.  If the FED can  predict the relationship between borrowed reserves and the money supply, then it can effectively use a  borrowed reserve target. Credit aggregates  are a target measurable by the volume of lending. Types include aggregate credit,  which is the total lending in the economy and another is total bank credit (or total lending and securities  held by banks). Result of Monetary Policy:  In an economy in which the FED cannot predict with perfect accuracy product  market and money demands,  the money supply is a better target when the LM Curve is more predictable  that the IS Curve, and the interest rate is a better target when the IS curve is more predictable than the LM  Curve. Countercyclical Monetary Policy:  designed to moderate swings around the high employment levels in order to reduce  the adverse effects of inflation and unemployment.  Keynes believed this was possible as did Monetarists.  Keynesian vies on monetary policy No complete crowding out, and both monetary and fiscal policies affect demand.  The economy is not  inherently stable  and thus output and employment fluctuate, the economy is typically slow to converge  to the natural rate, the effects of monetary and fiscal policies can be predicted with imperfect but  acceptable degrees of accuracy, shocks to the economy include both demand shocks and supply shocks Monetarist vies on monetary policy : view countercyclical policies as irrelevant. The economy is naturally stable , the demand for money is inelastic (large), adjustment speed of  markets is quick, effects of monetary policy occur with lags that are variable in length, the ability of the  FED is inadequate Lags:  The three types of policy time lag are the  recognition  lag,  response  lag and  transmission  lag.
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