Monetary Policy Flashcards
What is a “Policy Rate”?
An interest rate that a central bank sets and announces publicly; normally the rate at which it is willing to lend money to the commercial banks.
What is/was the “Gold Standard”?
With respect to a currency, if a currency is on the gold standard, a given amount can be covered into a prespecified amount of gold.
What is “Legal Tender”?
Something that must be accepted when offered in exchange for goods and services.
What is “Fiat Money”?
Money that is not convertible into any other commodity.
What is the “Lender of Last Resort”?
An entity willing to lend money when no other entity is ready to do so.
What is a “Payments System”?
The system for the transfer of money.
What are “Foreign Currency Reserves”?
Holding by the central bank of non-domestic currency deposits and non-domestic bonds.
What is “Price Stability”?
In economics, refers to an inflation rate that is low on average and not subject to wide fluctuation.
What are “Open Market Operations”?
The purchase or sale of bonds by the national central bank to implement monetary policy.
The bonds traded are usually sovereign bonds issued by the national government.
What is the “Official Interest Rate”?
An interest rate that a central bank sets and announces publicly; normally the rate at which it is willing to lend money to the commercial banks.
Also called the “official policy rate” or “policy rate”.
What are “Base Rates”?
The reference rate on which a bank bases lending rates to all other customers.
What is a “Two-week Repo Rate”?
The interest rate on a two-week repurchase agreement; may be used as a policy rate by the central bank.
What is a “Refinancing Rate”?
A type of central bank policy rate.
What is the “Reserve Requirement”?
The requirement for banks to hold reserves in proportion to the size of deposits.
What is the “Monetary Transmission Mechanism”?
The process whereby a central bank’s interest rate gets transmitted through the economy and ultimately affects the rate increase of prices.
What does “operational independence” refer to with respect to a central bank?
A central bank’s ability to execute monetary policy and set interest rates in the way it thought would best meet the inflation target.
What does a central banks “target independent” refer to?
A bank’s ability to determine the definition of inflation that they target, the rate of inflation that they target, and the horizon over which the target is achieved.
What is an “Inflation Report”?
A type of economic publication put out by many central banks.
What is “Deflation”?
Negative inflation.
What does “Contractionary” mean?
Tending to cause the real economy to contract.
What is the “Neutral Rate of Interest”?
The rate of interest that neither spurs nor slows the underlying economy.
What is “Demand Shock”?
A typically unexpected disturbance to demand, such as an unexpected interruption in trade or transportation.
What is a “Supply Shock”?
A typically unexpected disturbance to supply.
What are “Bond Market Viglantes”?
Bond market participants who might reduce their demand for long-term bonds, thus pushing up their yields.
What is the “Liquidity Trap”?
A condition in which the demand for money becomes infinitely elastic, so that injections of money into the economy will not lower interest rates or affect real activity.
What is “Quantitative Easing”?
An expansionary monetary policy based on aggressive open market purchase operations.
What are “Gilts”?
Bonds issued by the UK governments.
