chp15 Flashcards
name the 3 conventional monetary policy tools (hint: dor)
discount leading
open market operations
reserve requirements
what do open market operations involve?
the buying and selling of government securities by the federal reserve
give 2 types of open market operations
dynamic
defensive
dynamic open market operations are actions with the intent of…
…affecting the monetary base and level of reserves
defensive open market operations are actions with the intent of…
…controlling effects on the monetary base and level of reserves
examples of defensive open market operations
float and change in Treasury deposits
how do federal reserves communicate with primary dealers
electronic system: TRAPS (trading room automated processing system)
describe TRAPS
secure and near instantaneous system for trading securities
types of defensive open market operations
repos
reverse repos
repos: aka…
…repurchase agreements
reverse repos: aka…
…matched sale purchase transactions
difference between repos and reverse repos
repos: temporary SALE of securities by federal reserve
reverse repos: temporary PURCHASE of securities by federal reserve
3 classifications of federal reserve bank credit
primary
secondary
seasonal
primary credit
overnight credit at discount rate with no limits, used when banks are “good standing”
secondary credit
credit issued to banks that are “riskier” and experiencing liquidity problems
seasonal credit
credit that occurs for banks that have periods of high transactions and low transaction, going in patterns (Ex: Cape Cod local banks)
list nonconventional monetary policy tools (HINT: LANF)
liquidity provision
asset purchases (such as quantitative easing)
negative interest rates on bank deposits at a central bank
forward guidance
quantitative easing
purchasing of long-term securities by the Federal Reserve to expand the balance sheet
when has quantitative easing happened in the past?
2007/2008 financial crisis
forward guidance
the idea that adjusting interest rates in the short-term would affect interest rates in the long-run; so if we lower short-term interest rates, then long-run interest rates as a product of expectations will also fall
