Chapter CentralBanking and the Conduct of Monetary policy
Chapter 7 Central Banking and the Conduct of Monetary Policy
1. Brief Introduction on CentralBank Four Players in Money Supply Process Structure of central Banks and the Federal Reserve System The fed’ s Balance sheet
1. Brief Introduction on Central Bank • Four Players in Money Supply Process • Structure of Central Banks and the Federal Reserve System • The Fed’s Balance Sheet
1.1 Four Players in Money Supply Process The central bank-the governmentagency that oversees the banking systermyane responsible for the conduct of monetary policy Banks( depository institutions)the financial intermediaries that accept deposits from individuals and institutions and make loans Depositorsindividuals and institutions that hold deposits in banks Borrowers from banks--individuals and institutions that borrow from the depository institutions and institutions that issue bonds that are purchased by the depository institutions
1.1 Four Players in Money Supply Process • The central bank—the government agency that oversees the banking system and is responsible for the conduct of monetary policy • Banks (depository institutions)—the financial intermediaries that accept deposits from individuals and institutions and make loans • Depositors—individuals and institutions that hold deposits in banks • Borrowers from banks—individuals and institutions that borrow from the depository institutions and institutions that issue bonds that are purchased by the depository institutions
1.2 Structure of central Banks andthe Federal Reserve System Origins of the Federal Reserve System Structure of Federal Reserve System Structure of other central banks in the world
1.2 Structure of Central Banks and the Federal Reserve System • Origins of the Federal Reserve System • Structure of Federal Reserve System • Structure of other central banks in the world
1 3 The feds Balance sheet Assets Liabilities Government securities Currency in circulation Discount loans Reserves(bank deposits Gold and sDr U.S Treasury deposits certificate accounts Foreign and other Coin deposits Cash items in process Deferred-availability of collection cash items Others Others and capital accounts
1.3 The Fed’s Balance Sheet Assets Liabilities Government securities Discount loans Gold and SDR certificate accounts Coin Cash items in process of collection Others Currency in circulation Reserves (bank deposits) U.S Treasury deposits Foreign and other deposits Deferred-availability cash items Others and capital accounts
2. Control of the Monetary Base Assets Liabilities Government securities Currency in circulation Discount loans Reserves Coin Foreign deposits Monetary base(high-powered money) MB〓+R
2. Control of the Monetary Base Assets Liabilities Government securities Discount loans Coin ... Currency in circulation Reserves Foreign deposits ... Monetary base (high-powered money) MB =C+R
2. Control of the Monetary Base The Fed exercises control overthe monetary base mainly through two ways its purchases or sale of government securities in the open market its extension of discount loans to banks Essential way y open market operations(oMO open market purchase OMP) from banks or from the public open market sale oMs) to banks or to the public
2. Control of the Monetary Base • The Fed exercises control over the monetary base mainly through two ways • its purchases or sale of government securities in the open market • its extension of discount loans to banks Essential way open market operations(OMO) • open market purchase (OMP) from banks or from the public • open market sale (OMS) to banks or to the public
2.1 Open Market Purchase froni a/Bank Fed purchases $100 of securities tror a bank and pays for them with a s100 check The balance sheet of banking system Assets Liabilities Securities -$100 Reserves +$100 the balance sheet of Fed Assets Liabilities Securities +$100 Reserves +$100 NEXT
2.1 Open Market Purchase from a Bank • Fed purchases $100 of securities from a bank and pays for them with a $100 check. Assets Liabilities The balance sheet of banking system Assets Liabilities the balance sheet of Fed Securities -$100 Reserves +$100 Securities +$100 Reserves +$100
2.1 Open Market Purchase from a Bank The net result of this mP Reserves have increased by $100 ●MB=c+R As R increase, MB will rise by the same amount
2.1 Open Market Purchase from a Bank • The net result of this OMP • Reserves have increased by $100 • MB=C+R • As R increase, MB will rise by the same amount
2.2 Open Market Purchase from the nonbank public Case 1F o Assume that the person or corporation who sells $100 of securities to the Fed, and deposits the Feds check in the local bank
2.2 Open Market Purchase from the Nonbank Public • Case 1: • Assume that the person or corporation who sells $100 of securities to the Fed，and deposits the Fed’s check in the local bank