Slides 18-20

Question 1

There are two transmission channels: ___/quantity channels, and ___ channels.

Answer 1

Supply/quantity, and interest rate

Question 2

Supply/quantity transmission channels include traditional ___ (MV=PQ) and ___ expectations.

Answer 2

Traditional monetarist, rational expectations

Question 3

Interest rate transmission channels include traditional interest ___/___ and ___ balance channel.

Answer 3

Interest rate/credit, portfolio balance

Question 4

Monetarist channels represent the ___ side of the Fed’s balance - being ___ or ___.

Answer 4

Liability side, bank reserves or monetary base

Question 5

Dramatic surge in reserve balances suggests policy is ___.

Answer 5

Accommodative

Question 6

The plunge in M1 suggests reserve growth is not fostering ___ money supply growth.

Answer 6

Faster

Question 7

Via interest rate channel, operating targets and policy tools have a (large/small) direct effect on spending.

Answer 7

Small

Question 8

Via interest rate channels, policy affects the ___ of nominal interest rates.

Answer 8

Structure

Question 9

The Fed Exit plan (Plan A as of Jun 2011) is to stop or diminish ___ of principal payments, engage in transactions to better align the fed funds rate with and increase ___, and (buy/sell) assets.

Answer 9

Reinvestment, IOER, Sell assets

Question 10

Traditional policy is that the Fed shifts the ___ curve, rendering a change in the equilibrium ___ rate.

Answer 10

Supply curve, Funds rate

Question 11

Unconventional policies, such as ___ asset purchases, rendered a dramatic shift in the ___ curve.

Answer 11

Large scale, supply

Question 12

In theory, the interest rate paid on reserves sets a ___ on the Fed funds rate.

Answer 12

Floor

Question 13

In theory the FOMC could increase the floor on the funds rate by raising the ___.

Answer 13

IOER

Question 14

Why does the funds rate trade below the floor?

Answer 14

Because not all deposits at the fed earn interest. GSEs don’t earn interest on deposits and therefore have an incentive to sell these deposits.

Question 15

Asset sales or even large RRP or Term Deposits at the Fed may not be drain enough to align the ___ with the IOER.

Answer 15

Funds rate, IOER

Question 16

Concern 1 of the Fed Operational Concerns was that the trading of reserve balances to meet mandatory required reserves is ___.

Answer 16

Unnecessary

Question 17

Concern 2 was regarding FDIC Insurance Premiums; in that banks that expanded assets, including reserve balances, face an ___ in deposit insurance premiums.

Answer 17

An increase

Question 18

A good alternative to the Funds rate target may be the overnight general ___ ___ rate.

Answer 18

Collateral repo

Question 19

The RP serves as the benchmark for many ___ banks and ___ funds in lending and investing decisions.

Answer 19

Shadow, money market

Question 20

The purpose of the experimental FRFA RRPs (Fixed Rate Full Allotment Reserve Repurchase Agreements) was to establish a ___ on the overnight RP rate, thereby influencing other ___ rates.

Answer 20

Floor, money market

Question 21

The FRFA RRP interest rate serves as a ___ rate for ___ funds.

Answer 21

Floor rate, money market

Question 22

The fixed rate appears to be serving as an effective floor on the ___ rate.

Answer 22

RP

Question 23

Ultimately, the FRFA RRP Rate will be set to be closely aligned with the ___ rate.

Answer 23

IOER

Question 24

The simple Taylor rule is Federal Funds Rate Target= ___+___+___+___

Answer 24

Inflation Rate+Equilibrium Real Fed Funds Rate+(1/2)Inflation Gap+(1/2)Output Gap

Question 25

The Taylor rule adjust the nominal rate more than ___ with changes in the inflation rate.

Answer 25

One for one

Question 26

Benefit #1 of the Taylor rule is that it can provide a useful ___.

Answer 26

Benchmark for policymakers

Question 27

Benefit #2 of the Taylor rule is that it helps financial market participants form a ___ for expectations regarding the future course of monetary policy.

Answer 27

Baseline

Question 28

Benefit #3 of the Taylor rule is that it can be helpful in the central bank’s ___ with the general public.

Answer 28

Communication

Question 29

Limitation #1 of the Taylor rule is that its use requires a ___ measure of inflation be used to obtain the rule ___.

Answer 29

Single, prescriptions (e.g. using Headline CPI vs Core CPI)

Question 30

Limitation #2 of the Taylor rule is that it requires determining the level of the equilibrium ___ and the level of ___.

Answer 30

Equilibrium real interest rate, potential output

Question 31

Limitation #3 of the Taylor rule is that simple rules involve only a ___ number of variables.

Answer 31

Small

Question 32

Limitation #4 of the Taylor rule is that simple policy rules do not capture ___ considerations.

Answer 32

Risk-management considerations