Chapter 10 - Central Banks & Monetary Policy

Question 1

Central Bank

Answer 1

CBs are the govt. authorities in charge of monetary policy. They have effects on bank credit, most of what CBs do goes through the banking system.

Question 2

Open market operations refer to (2)

Answer 2

1. purchase/sale of securities by the Fed from a set of banks (primary dealers)
2. discount loans to financial institutions

Question 3

objective of open market operations

Answer 3

to influence the amount of money supply

Question 4

S&D in the market for reserves: 3 rates to keep in mind:

Answer 4

1. Discount window rate: the rate at which banks can borrow directly from the Fed
2. FedFund target rate: the rate the Fed hopes to achieve
3. Interest rate on excess reserves: the rate Fed pays on excess reserves

Question 5

Monetary policy recently

Answer 5

FedFund rate close to 0 since 2008. abundance of reserves to purchase securities and sustain the economy.

Question 6

Monetary policy recently: securities

Answer 6

Security holdings have been declining recently. Fed is letting securities mature without rolling-over funds into new securities

Question 7

tools Fed uses to increase FedFund rates with large reserves (3)

Answer 7

1. Increase interest on excess reserves
2. increase reserve requirements
3. reserve repos (more technical)

Question 8

EBC has similar tools to Fed to implement its policy (3)

Answer 8

1. open market operations: main refinancing operations (like repo) via bid system from its credit institutions (competitive bid < 2008, uncompetitive > 2008)
2. Lending to banks and other liquidity provision
3. Reserve requirements