The Monetary Sector Flashcards
The Central bank is the Lender..
.. of Last Resort
Liabilities =
Monetary Base + Other liabilities to ODCs + Liabilities to rest of the economy
Monetary Base = f(Currency Issued, Liabilities)
Currency Issued + Liabilities to all excl. Govnt.
Monetary Base = f(Assets)
NFA + NDA
M1
Currency in Circulation + Demand Deposits
M2
M1 + Time and Saving Deposits + MM Funds + FX Deposits
M2 = f(Quasi Money)
M1 + Q = NFA + NCG + CPS
Monetary Base = f(M?)
M0
Money Creation/Created, M =
Deposits (aka MB) / Reserve Ratio
Money Multiplier, MM
M / MB = 1 / RR
Aggregate Money Demand is predicted by the .. rule
Taylor Rule
Taylor Rule says that
the policy rate is a function of 1) the expected inflation rate 2) the expected inflation rate vs target 3) the output gap
The Taylor Rule means that there is a practical policy tradeoff between
growth and inflation
Demand Pull Inflation happens when growth is ..
too fast
Cost Push Inflation happens when growth is ..
sluggish
In MV = PY, think about the interest rate as the opportunity cost of ..
holding/saving money OR price of new money
NFA = f(NFA,0)
NFA,0 + Change in(Reserves, BOP)
We approximate CPS growth with
real domestic growth (but where large retained earnings and access to credit is limit this is unlikely to hold)