federal reserve system Flashcards
fiscal is
treasury and congress
-applies to tex poliyc and unemployemnt
monetary is
fed
difference between monetary and fiscal
institution diffference. they used to be carried out by the gov. now they are (by law) independent
how do we measure inflation
RGDP
what is the optimal rate of inflation
should be (+)
when was the change of the feds mandate
- can chage it again. they consider switch to single mandate
pre independence
euro. coins, barter, locally issued commodity backed fiat
-no central power
-double coincadence of wants
was the first bank of the united states like Fed
not like fed today because no distinction between monetary and fiscal issue
what was used to finance civil war
green backs
what was debate about bonds
should we issue bonds
north=yes
south=no we leave it to states
why did US want to create fed
US financial stuff was saved by JP morgan so US decided they did not want indiviudal people to have so much influence, so created fed to issue money
what do fed actions depend on
its mandate
-like in WWII mandate/focus was financing/winning war
why is there less incentive to bank run today
because it is FDIC insured
FDIC = prevent bank runs (prevent fire in 1st place)
four primary tools of fed
1) reserve requirements
2) interest on reserves
3)open market operations
4) discount rate
reserve requirement
% deposit banks have to hold to support said deposits
what is reserve requirement % today
it is zero because banks use to be on tight leash and in 2020 got rid of leash become some slack on leash already after 2010
what is interest on reserves
whne they hold reserve money with fed. main tool fed uses today to change interest rates. pay banks 5% on reserve holdings
what are open market operations
purchase/sale of financial assets on financial markets
what are main open market operations
bond and rates. also buy ortage back secuity and commencial bonds (business debt)
what is discount rate
rate if ou take out loan from bank that you pay
is interest on reserve lower than discount rate
yes because fed changes it more
what are the three institutions of the federal reserve system
1) federal open market committee
2)federal advisory council
3)member banks
why are terms non renewable on board of governors
because want to make sure these peopple choose free of political influence
-good way to achieve independence
do chairman in board of governors have more power than the others
no, most power comes from representative function
what are the five functions of the federal reserve board
1) vote on coduct of OMO
2)sets reserve requirements/IOR
3)review/determines disc rate
4)regulation
5)reviews each FRB budget
the chair of the board is also the chair of the
FOMC
what is the most important function of the chair
TALK
who was blamed for great depression
fed was blamed. Fed did not intervene enough (fed leader died around then)
why is great depression/world war II pushing on a string
pushigng is a way less effective than pulling on a string. Increase AD is differicult.
easy to make things slow down, harder to make go
paul volker disinflation
the new approach to monetary policy involved high interest rates (tight money) to slow the economy and fight inflation.
2008 financial crisis tactics with ben bernake
came up with polciies to combat it
-qualitative easing
-0% interest rate
(at the time these were unconventional)
labor market with janet yellen
-labor market imprived with her each month
-first woment o serve as secretary of treasury and chair
jerome powell coronavirus recession
“wait to see how history views gerome powell”
prior to the banking act of 1935, whcih established the FOMC, who played a larger role in setting policy than it does today
FRBNY
6 functions of federal reserve banks
1)vote on OMO on rotating basis
2)recommend discount rate, make discount window loans
3)offer clearing/settlement services
4)collect data on local business conditions
5)conduct policy relevant research
6)withdraw damaged (vault) cash, issue new (vault cash)
what is beige book
economic analysis
Fed now new settlement system
to have real time gorss output
-payment immediatkey at low cost
-wires but cheaper
why does NY host the federal reserve trading dek
because it has lots of banks
what does FOMC committee do
-consisrs if 12 rotating members
-meets 8 times a year
-issues directives to the NY fed trading desk
FOMC pre
members preapre by consuting two primary sources of info (the tealbooks and beige books)
FOMC post
the fed communicates its assessment and strategy to the public
what does each FOMC member receive before each meeting
two confidential tealbooks in addition to the publicly available beiege book
Historically greenbooks were
analysis of the local and internaitonal economy
historically bluebooks were
monetary policy strategy/alternatives
historically redbooks were
current economci comment by district
is fed transparent
today, in recent years the Fed has made a series of efforts to increase transparency surrounding the FOMC policy making
why 2% Fed interest rate goal
no sicience behind it. having an explicit interest rate is all about transparecy and anchoring peoples expectations
do most countries have single or dual mandate
single
feds dual mandate
choose between max employment vs stable prices
-first person to make this choice was paul volcker (disinflation)
economcist believe that so long as inflation expectations are well anchored, ……
monetary policy faces a tradeoff between achieving low inflation and low unemploment
hawk prioritize
low inflation
doves prioritive
low unemployment
what would happen if the fed were independent
it could be used to print money and finance expenditures
who owns the fed
not a private institution
-joint effort of private sector (like wells fargo) and government
