tailieunhanh - Lecture Principles of money, banking, and financial markets (12th edition): Chapter 21 - Ritter, Silber, Udell

Chapter 21 - Monetary policy strategy. In this chapter you will learn to realize how the Federal Open Market Committee chooses an economic target and a policy lever to reach that target, understand the mechanics of the federal funds market and how the Federal Reserve can interact in that market. | Chapter 21 Monetary Policy Strategy Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Learning Objectives • Realize how the Federal Open Market Committee chooses an economic target and a policy lever to reach that target • Understand the mechanics of the federal funds market and how the Federal Reserve can interact in that market • Define the Taylor rule and explain its significance to monetary policy Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 21-2 Introduction • “Federal Open Market Committee (FOMC) seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output” • Examination of the formulation of policy through the Federal Open Market Committee’s directive • Review the reasons for the particular course of action that is followed Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 21-3 1 The FOMC Directive • The FMOC meets every five or six weeks – Review of recent economic and financial developments • • • • • • Prices Unemployment Interest rates Money supply Balance of payments Bank credit – Makes projections for the future – Based on anticipated economic conditions, proposes appropriate monetary policy Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 21-4 The FOMC Directive (Cont.) • The FOMC directive – In recent years, FOMC directive usually contains a single paragraph that begins with a general qualitative statement of current policy goals – Specifies the immediate prescription for implementing longer-term objectives – In outlining its operating targets, the Committee refers to conditions in the reserve markets, not in terms of money supply growth Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 21-5 The FOMC Directive (Cont.) • The FOMC directive (Cont.) – Although Fed emphasizes monetary and reserve aggregates, in practice it operates on interest rates (Federal Funds Rate) – After each meeting, the FOMC releases a statement •