Monetary Policy During the Recession of 2007-2009
Posted on May 6, 2009 - Filed Under Central Banks | Leave a Comment
Fed Chairman Ben Bernanke is a student of the Great Depression; many commentators (notably Milton Friedman and Anna Schwartz in A Monetary History of the United States, 1867-1960) believe that the Depression was longer than it would have been had the Fed adopted a more aggressive policy. As the real estate bubble began to unwind [...]
Read More..>>Understanding the Terms of the Board of Governors of the Fed
Posted on January 28, 2009 - Filed Under Central Banks | Leave a Comment
The Federal Reserve System is a complex organization, comprised of twelve regional Feds and a Federal Reserve Board in Washington, DC. In this article I describe the terms of the Board of Governors, the group that sets Fed policy (I have written elsewhere on the structure of the Fed).
The current structure of the Board of [...]
Understanding Fed Open Market Operations
Posted on December 17, 2008 - Filed Under Central Banks | Leave a Comment
The primary monetary policy tool of the Federal Reserve is the Federal Funds rate (see here for a description of the package of tools the Fed can use). This article briefly describes the nature of monetary policy, the idea of targetting a rate and how the Fed actually conducts open market operations (for a fairly [...]
Read More..>>Understanding Quantitative Easing
Posted on November 25, 2008 - Filed Under Central Banks | Leave a Comment
The Fed is currently facing a problem that is different from the one it has faced for much of the past 50 years. Since 1951 (when the Fed regained control of monetary policy from the Treasury), the Fed’s problem was managing the inflation rate; in recent months there has been some concern that prices might [...]
Read More..>>How the Fed Communicates with the Markets
Posted on July 22, 2008 - Filed Under Central Banks | Leave a Comment
The Fed communicates in very specific ways to the markets. Because of its structure (seven governors and 12 regional Fed Presidents), the views of the different speakers often diverge on important issues. A good Fed chairman will use his power and influence to present a unified view of the Fed’s view of the current situation, [...]
Read More..>>Understanding the Policy Tools of the Fed
Posted on July 21, 2008 - Filed Under Central Banks | Leave a Comment
The Fed has three traditional policy tools to implement monetary policy: (1) the Fed Funds rate; (2) the discount rate and (3) reserve requirements.
To understand these tools you must first understand a bit about how banks operate. Banks must keep deposits at the Federal Reserve (more about this below under the section describing reserve [...]
The Many Mandates of the Fed
Posted on July 20, 2008 - Filed Under Central Banks | Leave a Comment
The Federal Reserve Act states the objectives of monetary policy: “The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of [...]
Read More..>>The Structure of the Fed
Posted on July 19, 2008 - Filed Under Central Banks | Leave a Comment
The Federal Reserve was created by Congress almost 100 years ago, when the economy and markets were very different from today. Creating a central bank was controversial at the time and the political compromises led to a peculiar structure (see here for the official version of the Fed’s history; there are numerous alternate versions of [...]
Read More..>>Understanding the Federal Reserve
Posted on July 19, 2008 - Filed Under Central Banks | Leave a Comment
The Fed is the US central bank. The US has a fairly complex history of central banking (see here for the official version); the Fed was officially created by Congress in 1913 but did not really get the independence that it enjoys today until 1951. The following essays address the structure of the [...]
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