Monetary Policy University of Notre Dame货币政策圣母大学.pptVIP

Monetary Policy FF = 2% + (Inflation) + .5(Output Gap) + .5(Inflation – 2%) * * Monetary policy can be categorized by four characteristics Monetary Policy Goals Instruments Intermediate Targets Discretion Instruments refer to the policy options the Fed has to control the supply of money… Open Market Operations By purchasing or selling US Treasuries, the Fed can alter the supply of bank reserves (MB) Discount Window Loans The Fed can also influence reserves by altering the interest rate charged on loans to commercial banks. (MB) Reserve Requirements Reserve Requirements influence the ability of banks to create new loans which affects the broader aggregates (M1,M2,M3) This is the most often used instrument! Monetary Policy goals address the central bank’s agenda in general terms The Bank of England Follows an explicit Inflation Target. Specifically, the goal is to maintain 2% annual inflation. The Bank of China appears to have export driven growth as their primary objective The ECB (European Central Bank) and the Federal Reserve follow policies of stable prices and maintenance of full employment Intermediate Targets address the question: “How will I meet my goals?”. Targets are variables that the central bank can more directly control. For Tiger Woods, the goal is to win the golf tournament The target is to score 18 under par (the number he thinks he needs to win) The Bank of China is currently targeting the exchange rate at 8.28 Yuan per dollar The Federal Reserve is currently targeting the Federal Funds Rate at 2.75% The Bank of England is currently targeting the repo rate at 4.75% Goals vs. Targets Targets can be broadly classified into either “Price Targets” or “Quantity Targets” Suppose that the Federal Government could influence the supply of oranges and wanted to regulate the orange market Quantity of Oranges Price Demand Supply $5/Lb Lowering the price to $4 (price target) and Raising the quantity to 1,500 (quantity target) are both describing the same