tailieunhanh - Lecture Money and capital markets: Chapter 13 – Peter S. Rose, Milton H.Marquis

In this chapter, students will be able to understand: The United States has a comparatively large but declining number of banks, nondepository institutions are playing an increasingly important role in the financial system. Five types of financial intermediary may be classified as nondepository institutions. | Chapter 13 The Tools and Goals of Central Bank Monetary Policy Learning Objectives To understand how the policy tools available to central banks work in carrying out a nation’s money and credit policies. To explore the strengths and weaknesses of the various monetary policy tools. To learn how the Federal Reserve System controls . credit and interest rate levels. To see how central bank policy actions affect a nation’s economic goals. Introduction Central banks are given the task of regulating the money and credit system in order to achieve the economic goals of maximum employment, a stable price level, and sustainable economic growth. Although these objectives are not easy to achieve and often conflict, the central bank has powerful policy tools at its disposal. General versus Selective Credit Controls General credit controls affect the entire banking and financial system. Examples: reserve requirements, the discount rate, open market operations Selective credit controls . | Chapter 13 The Tools and Goals of Central Bank Monetary Policy Learning Objectives To understand how the policy tools available to central banks work in carrying out a nation’s money and credit policies. To explore the strengths and weaknesses of the various monetary policy tools. To learn how the Federal Reserve System controls . credit and interest rate levels. To see how central bank policy actions affect a nation’s economic goals. Introduction Central banks are given the task of regulating the money and credit system in order to achieve the economic goals of maximum employment, a stable price level, and sustainable economic growth. Although these objectives are not easy to achieve and often conflict, the central bank has powerful policy tools at its disposal. General versus Selective Credit Controls General credit controls affect the entire banking and financial system. Examples: reserve requirements, the discount rate, open market operations Selective credit controls affect specific groups or sectors of the financial system. Examples: moral suasion, margin requirements on the purchase of listed securities Reserve Requirements In the ., all depository financial institutions (including nonmembers) are required to conform to the deposit reserve requirements set by the Fed. Changes in reserve requirements are a very potent, though little-used tool. Indeed, reserve requirements have recently been reduced in the ., and eliminated in Canada, New Zealand, and the . Reserve Requirements An increase in deposit reserve requirements decreases the deposit and money multipliers, slowing the growth of money, deposits and loans reduces the amount of excess legal reserves - institutions deficient in required legal reserves will have to sell securities, cut back on loans, or borrow reserves increases interest rates, particularly in the money market, as depository institutions scramble to cover any reserve deficiencies Effects of Changes in Reserve Requirements