金融市场与机构教学课件：ch08 金融市场与机构教学课件：chondu金融市场与机构教学课件：cht of Monetary Poli金融市场与机构教学课件：chy Tools,Goals,Strategy,and Ta金融市场与机构教学课件：chti金融市场与机构教学课件：chs

Chapter8ConductofMonetaryPolicy:Tools,Goals,

Strategy,

andTacticsChapterPreview “Monetarypolicy”referstothemanagementofthemoneysupply.Althoughtheideaissimpleenough,thetheoriesguidingtheFederalReservearecomplexandoftencontroversial.But,weareaffectedbythispolicy,andabasicunderstandingofhowitworksis,therefore,important.2Copyright©2009PearsonPrenticeHall.Allrightsreserved.ChapterPreviewWeexaminehowtheconductofmonetarypolicyaffectsthemoneysupplyandinterestrates.WefocusprimarilyonthetoolsandthegoalsoftheU.S.FederalReserveSystem,andexamineitshistoricalsuccess.Topicsinclude:TheFederalReserve’sBalanceSheetTheMarketforReservesandtheFederalFundsRateToolsofMonetaryPolicy3Copyright©2009PearsonPrenticeHall.Allrightsreserved.ChapterPreview(cont.)DiscountPolicyReserveRequirementsMonetaryPolicyToolsoftheECBThePriceStabilityGoalandtheNominalAnchorOtherGoalsofMonetaryPolicy4Copyright©2009PearsonPrenticeHall.Allrightsreserved.ChapterPreview(cont.)ShouldPriceStabilitybethePrimaryGoalofMonetaryPolicy?MonetaryTargetingInflationTargetingTactics:ChoosingthePolicyInstrument5Copyright©2009PearsonPrenticeHall.Allrightsreserved.TheFederalReserve’sBalanceSheet TheconductofmonetarypolicybytheFederalReserveinvolvesactionsthataffectitsbalancesheet.Thisisasimplifiedversionofitsbalancesheet,whichwewillusetoillustratetheeffectsofFedactions.6Copyright©2009PearsonPrenticeHall.Allrightsreserved.TheFederalReserve’sBalanceSheet:LiabilitiesThemonetaryliabilitiesoftheFedinclude:Currencyincirculation:thephysicalcurrencyinthehandsofthepublic,whichisacceptedasamediumofexchangeworldwide.Reserves:AllbanksmaintaindepositswiththeFed,knownasreserves.Therequiredreserveratio,setbytheFed,determinestherequiredreservesthatabankmustmaintainwiththeFed.AnyreservesdepositedwiththeFedbeyondthisamountareexcessreserves.TheFeddoesnotpayinterestonreserves,butthatmaychangebecauseoflegislativechangesfor2011.7Copyright©2009PearsonPrenticeHall.Allrightsreserved.TheFederalReserve’sBalanceSheet:AssetsThemonetaryassetsoftheFedinclude:GovernmentSecurities:ThesearetheU.S.TreasurybillsandbondsthattheFederalReservehaspurchasedintheopenmarket.Aswewillshow,purchasingTreasurysecuritiesincreasesthemoneysupply.DiscountLoans:Theseareloansmadetomemberbanksatthecurrentdiscountrate.Again,anincreaseindiscountloanswillalsoincreasethemoneysupply.8Copyright©2009PearsonPrenticeHall.Allrightsreserved.OpenMarketOperations Inthenexttwoslides,wewillexaminetheimpactofopenmarketoperationontheFed’sbalancesheetandonthemoneysupply.Assuggestedinthelastslide,wewillshowthefollowing:PurchaseofbondsincreasesthemoneysupplyMakingdiscountloansincreasesthemoneysupply Naturally,theFedcandecreasethemoneysupplybyreversingthesetransactions.9Copyright©2009PearsonPrenticeHall.Allrightsreserved.ResultR$100,MB$100TheFederalReserveBalanceSheetOpenMarketPurchasefromPublic10Copyright©2009PearsonPrenticeHall.Allrightsreserved.TheFederalReserveBalanceSheetDiscountLendingResultR$100,MB$10011Copyright©2009PearsonPrenticeHall.Allrightsreserved.SupplyandDemandinthe

MarketforReserves WenowhavesomeunderstandingoftheeffectofopenmarketoperationsanddiscountlendingontheFed’sbalancesheetandavailablereserves.Next,wewillexaminehowthischangeinreservesaffectsthefederalfundsrate,theratebankschargeeachotherforovernightloans.Further,wewillexamineathirdtoolavailabletotheFed—theabilitytosettherequiredreserveratiofordepositsheldbybanks.12Copyright©2009PearsonPrenticeHall.Allrightsreserved.SupplyandDemandinthe

MarketforReservesDemandcurveslopesdownbecauseiff

,

ERandRdupSupplycurveslopesdownbecauseiff

,

DL,Rs

Equilibriumiff

whereRd=Rs13Copyright©2009PearsonPrenticeHall.Allrightsreserved.SupplyandDemandinthe

MarketforReservesOpenmarketpurchase,Rsshiftstorightandiff

id

,DL,Rsshiftstorightandiff

14Copyright©2009PearsonPrenticeHall.Allrightsreserved.Figure8.3,panel(a)

ResponsetoaChangeintheDiscountRateSupplyandDemandinthe

MarketforReservesTheFedlowersid,butdoesnotcrossthedemandcurveRsshiftsdownbutnoimpactonthefedfundsrates15Copyright©2009PearsonPrenticeHall.Allrightsreserved.Figure8.3,panel(b)

ResponsetoaChangeintheDiscountRateSupplyandDemandinthe

MarketforReservesTheFedlowersid,anddoescrossthedemandcurveRsshiftsdown

andiff

16Copyright©2009PearsonPrenticeHall.Allrightsreserved.SupplyandDemandinthe

MarketforReservesRR,Rdshiftstoright,iff

17Copyright©2009PearsonPrenticeHall.Allrightsreserved.ToolsofMonetaryPolicy Nowthatwehaveseenandunderstandthetoolsofmonetarypolicy,wewillfurtherexamineeachofthetoolsinturntoseehowtheFedusestheminpracticeandhowusefuleachtoolsis.18Copyright©2009PearsonPrenticeHall.Allrightsreserved.InformationabouttheFOMC

http:///fomcToolsofMonetaryPolicy:

OpenMarketOperationsOpenMarketOperationsDynamic:MeanttochangeReservesDefensive:MeanttooffsetotherfactorsaffectingReserves,typicallyusesreposAdvantagesofOpenMarketOperationsFedhascompletecontrolFlexibleandpreciseEasilyreversedImplementedquickly19Copyright©2009PearsonPrenticeHall.Allrightsreserved.ToolsofMonetaryPolicy:OpenMarketOperationsattheTradingDeskThestaffreviewstheactivitiesofthepriordayandissueforecastsoffactorsaffectingthesupplyanddemand

forreserves.Thisinformationisusedtodeterminereservechangesneededtoobtainadesiredfedfundsrate.Governmentsecuritiesdealersarecontactedtobetterdeterminetheconditionofthemarket.ProjectionsarecomparedwiththeMonetaryAffairsDivisionoftheBOG,andacourseofactionisdetermined.Oncetheplanisapproved,thedeskcarriesouttherequiredtrades,viatheTRAPSsystem.20Copyright©2009PearsonPrenticeHall.Allrightsreserved.ToolsofMonetaryPolicy:OpenMarketOperationsattheTradingDeskThetradingdesktypicallyusestwotypesoftransactionstoimplementtheirstrategy:Repurchaseagreements:theFedpurchasessecurities,butagreestosellthembackwithinabout15days.So,thedesiredeffectisreversedwhentheFedsellsthesecuritiesback–goodfortakingdefensestrategiesthatwillreverse.Matchedsale-purchasetransaction:essentiallyareverserepro,wheretheFedsellssecurities,butagreestobuythemback.21Copyright©2009PearsonPrenticeHall.Allrightsreserved.ToolsofMonetaryPolicy:

DiscountLoansTheFed’sdiscountloansareprimarilyofthreetypes:PrimaryCredit:Policywherebyhealthybanksarepermittedtoborrowastheywishfromtheprimarycreditfacility.SecondaryCredit:Giventotroubledbanksexperiencingliquidityproblems.SeasonalCredit:Designedforsmall,regionalbanksthathaveseasonalpatternsofdeposits.22Copyright©2009PearsonPrenticeHall.Allrightsreserved.ToolsofMonetaryPolicy:

DiscountLoansTheFedstandsreadytolend.Asdemandincreases,Rsshifts,limitingtheimpactoniff.23Copyright©2009PearsonPrenticeHall.Allrightsreserved.ToolsofMonetaryPolicy:

DiscountLoansLenderofLastResortFunction

Topreventbankingpanics Example:ContinentalIllinoisReallyneeded?WhatabouttheFDIC?Problem1:FDIConlyhasabout1%ofdepositsintheinsurancetrust–peopleneedtheFedforadditionalconfidenceinthesystemProblem2:over$1.8trillionarelargedepositsnotinsuredbytheFDIC24Copyright©2009PearsonPrenticeHall.Allrightsreserved.ToolsofMonetaryPolicy:

DiscountLoansLenderofLastResortFunctionCanalsohelpavoidpanicsEx:Marketcrashin1987andterroristattacksin2001–badevents,butnorealpanicinourfinancialsystemButtherearecosts!Banksandotherfinancialinstitutionsmaytakeonmorerisk(moralhazard)knowingtheFedwillcometotherescue25Copyright©2009PearsonPrenticeHall.Allrightsreserved.InsidetheFed

BlackMondaywasabaddayforstockmarketinvestors,buttheFeddidhelpensurethatafinancialpanic(likein1929)didnotfollow.By2:00pm,creditwasbecomingthin.Banksandotherlendersfearedtheworse,andstoppedlendingGreenspanannouncedtheFedwas“readytoserveasasourceofliquidity”toavoidapanicTuesdaywasvolatile,butransmoothly26Copyright©2009PearsonPrenticeHall.Allrightsreserved.InsidetheFed

Theterroristattackson9/11/2001causedasimilardisruptioninliquidityasManhattanwasshutdownforseveraldays.TheFedannouncedthatitwas“...openandoperating...availabletomeetliquidityneeds.”Lentover$45billion,increasingreservesby$80billionThefinancialsystemrecovered,andanotherpanicwasaverted27Copyright©2009PearsonPrenticeHall.Allrightsreserved.ReserveRequirementsEveryonesubjecttothesameruleforcheckabledeposits:3%offirst$48.3M,10%above$48.3MFedcanchangethe10%RarelyusedasatoolRaisingcausesliquidityproblemsforbanksMakesliquiditymanagementunnecessarilydifficultFOMCcalendarandmeetingminutes

http:///fomc/#calendars28Copyright©2009PearsonPrenticeHall.Allrightsreserved.MonetaryPolicyToolsoftheECB TheECBsignalsitsintendedpolicybysettingatargetfinancingrate,whichinturnestablishestheovernightcashrate.LiketheFed,theEBCthenhasseveraltoolsatitsdisposaltoimplementitsintendedpolicy:openmarketoperations,lendingtobanks,andreserverequirements.Wewilldiscusseach.29Copyright©2009PearsonPrenticeHall.Allrightsreserved.ECBOpenMarketOperationsLiketheFed,openmarketoperationsaretheprimarytooltoimplementthepolicy.TheECBprimarilyusesmainrefinancingoperations(likerepos)viaabidsystemfromitscreditinstitutions.Operationsaredecentralized–carriedoutbyeachnation’scentralbank.Alsoengageinlong-termrefinancingoperations,butnotreallytoimplementpolicy.30Copyright©2009PearsonPrenticeHall.Allrightsreserved.ECBLendingtoBanksLiketheFed,theECBlendstoitsmemberbanksviaitsmarginallendingfacility.Bankscanborrowatthemarginallendingrate,whichis100basispointsabovethetargetlendingrate.Alsohasthedepositfacility.Thisprovidesafloorfortheovernightmarketinterestrate.31Copyright©2009PearsonPrenticeHall.Allrightsreserved.ECBReserveRequirementsLiketheFed,ECBrequiresbankstohold2%ofcheckabledeposits,plusaminimumreserverequirement.TheECBdoespayinterestonreserves,unliketheFed.32Copyright©2009PearsonPrenticeHall.Allrightsreserved.PriceStabilityGoal

&theNominalAnchor Policymakershavecometorecognizethesocialandeconomiccostsofinflation.Pricestability,therefore,hasbecomeaprimaryfocus.Highinflationseemstocreateuncertainty,hamperingeconomicgrowth.Indeed,hyperinflationhasprovendamagingtocountriesexperiencingit.33Copyright©2009PearsonPrenticeHall.Allrightsreserved.PriceStabilityGoal

&theNominalAnchorPolicymakersmustestablishanominalanchorwhichdefinespricestability.Forexample,“maintaininganinflationratebetween2%and4%”mightbeabanchor.Ananchoralsohelpsavoidthetime-inconsistencyproblem.34Copyright©2009PearsonPrenticeHall.Allrightsreserved.PriceStabilityGoal

&theNominalAnchorThetime-inconsistencyproblemistheideathatday-by-daypolicydecisionsleadtopoorlong-runoutcomes.Policymakersaretemptedintheshort-runtopursueexpansionarypoliciestoboostoutput.However,justtheoppositeusuallyhappens.Centralbankswillhavebetterinflationcontrolbyavoidingsurpriseexpansionarypolicies.Anominalanchorhelpsavoidshort-rundecisions.35Copyright©2009PearsonPrenticeHall.Allrightsreserved.OtherGoalsofMonetaryPolicyGoalsHighemploymentEconomicgrowthStabilityoffinancialmarketsInterest-ratestabilityForeignexchangemarketstabilityGoalsofteninconflict36Copyright©2009PearsonPrenticeHall.Allrightsreserved.ShouldPriceStabilitybethe

PrimaryGoal?Pricestabilityisnotinconsistentwiththe“othergoals”inthelong-run.Forexample,thereisnotrade-offbetweeninflationandemploymentinthelong-run.However,thereareshort-runtrade-offs.Forexample,anincreaseininterestrateswillhelppreventinflation,butdoesincreaseunemploymentintheshort-run.37Copyright©2009PearsonPrenticeHall.Allrightsreserved.ShouldPriceStabilitybethe

PrimaryGoal?TheECBusesahierarchicalmandate,placingthegoalofpricestabilityaboveallothergoals.TheFed,incontrast,usesadualmandate,where“maximizingemployment,stableprices,andmoderatelong-terminterestrates”areallgivenequalimportance.38Copyright©2009PearsonPrenticeHall.Allrightsreserved.ShouldPriceStabilitybethe

PrimaryGoal?

Whichisbetter?If“maximumemployment”isdefinedasthenaturalrateofunemployment,thenbothhierarchicalanddualmandatesachievethesamegoal.However,it’susuallymorecomplicatedinpractice.Also,short-runinflationmaybeneededtomaintaineconomicoutput.So,long-runinflationcontrolshouldbethefocus.39Copyright©2009PearsonPrenticeHall.Allrightsreserved.ShouldPriceStabilitybethe

PrimaryGoal?

Whichisbetter?Butthedualmandatecanleadtoexpansionarypoliciesthatincreaseemployment,output,butalsoincreaseslong-runinflation.However,ahierarchicalmandatecanleadtoover-emphasisoninflationalone–evenintheshort-run.Theanswer?Itdepends.Aslongasithelpsthecentralbankfocusonlong-runpricestability,eitherisacceptable.40Copyright©2009PearsonPrenticeHall.Allrightsreserved.MonetaryTargeting

Inpursuingastrategyofmonetarytargeting,acentralbankcommitstoapolicyof,say,a5%growthrateofM1ora6%growthrateofM2.Thecentralbankisthenaccountableforhittingthattarget.Let’slookathowafewcountriesusemonetarytargeting,andsomeofitsprosandcons.41Copyright©2009PearsonPrenticeHall.Allrightsreserved.U.S.MonetaryTargetingTargetingMonetaryAggregates:1970sArthurBurnsisFedchairman,andtheFedcommitstomonetarytargetsIn1975,theFedisrequiredtoannounceitstargets,andisshowntoconsistentlymissthemPaulVolckertakesoverin1979,buttheFedcontinuestomissitstargetsWhatwastheproblem?ManythingsoutoftheFed’scontrol:financialinnovation,NOWaccounts,andrecessions.Volckerwasprobablynotcommittedtothetargets.Hewasfocusedonfightinginflationviashort-terminterestrates.In1993,AlanGreenspanofficiallyannouncedtheendoftheuseofmonetaryaggregates.42Copyright©2009PearsonPrenticeHall.Allrightsreserved.JapaneseMonetaryTargeting Japan’sinflationin1974topped20%.ThebankofJapanbegantofocusonmoneysupplygrowthrates:Startingin1978,Japanannounced“forecasts”eachquarterforM2+CDsClearlyfocusedonmonetarytargetsgoingforward.43Copyright©2009PearsonPrenticeHall.Allrightsreserved.JapaneseMonetaryTargetingJapan’smonetarypolicyperformancefrom1978-1987wasbetterthantheFed.Lowinflationandlowimpactonoutputwereachieved.However,financialinnovationandderegulationhadsimilaraffectasUS.Andthebubbleeconomywasaddressedwithatightermonetarypolicy.Theresultpost-1989wasadeclineintheeconomy,landandstockprices.Countryisjustnowrecoveringfromthisperiod.Almostadecadeofstagnationresulted!44Copyright©2009PearsonPrenticeHall.Allrightsreserved.GermanMonetaryTargetingFrommid-1970sthroughthelate-1990s,Germanyengagedintargeting.ItssuccesshastrickledovertotheofficialpoliciesoftheECB.Focusedprimarilyoncentralbankmoney:currencyincirculationplusweightedbankdeposits.Germanydidnotfocusonspecifictargetsasrules–overshottargetsforlongperiods.Germanyusedtargetstoreallycommunicatelong-runstrategies.Germany’sflexibility,however,madetheirpolicieslesstransparent–noteasilyunderstood.ButtheydidmakegreateffortstodiscusstheirobjectiveswiththeGermanpeople.45Copyright©2009PearsonPrenticeHall.Allrightsreserved.MonetaryTargeting:

ProsandConsAdvantagesResultsobservablealmostimmediatelyHelpsavoidthetime-inconsistencytrapDisadvantagesLinkbetweengoalandtargetmustexist!HittingtargetdoesnotguaranteegoalachievedCommunicationiscomplicatedbytryingtoexplaintheassumedrelationship46Copyright©2009PearsonPrenticeHall.Allrightsreserved.Global:theECB’sStrategyTheECBpursuesahybridmonetarypolicy,includingbothmonetarytargetingandinflationtargeting.Twokeypillars:MonetaryandcreditaggregatesaremonitoredforimplicationsonfutureinflationandgrowthManyothervariablesexaminedtoassessthefutureeconomicoutlook47Copyright©2009PearsonPrenticeHall.Allrightsreserved.InflationTargetingInflationtargetinginvolves:Announcingamedium-terminflationtargetCommitmenttomonetarypolicytoachievethetargetInclusionofmanyvariablestomakemonetarypolicydecisionsIncreasingtransparencythroughpubliccommunicationofobjectivesIncreasingaccountabilityformissedtargets48Copyright©2009PearsonPrenticeHall.Allrightsreserved.InflationTargetingNewZealandPassedtheReserveBankofNewZealandAct(1990)Policytargetagreementsetanannualinflationtargetintherangeof0%to2%,andhigherinsubsequentyearsInitiallycheckedinflation,butcausedrecession/unemploymentConditionshaveimprovedsince1992CanadaEstablishedformalinflationtargets,startingin1991Targetshavealsobeenadjustedasneeded,buthavehadsimilarunemploymentproblemsasNZ49Copyright©2009PearsonPrenticeHall.Allrightsreserved.InflationTargetingUnitedKingdomEstablishedformalinflationtargets,startingin1992,publishedinInflationReportTargetshavealsobeenadjustedasneededBy1994,targetrangeinflationwasachieved,andhasgenerallyremainedclosesince.GrowthintheUKremainedstrong,andunemploymenthasnotbeenanissue.50Copyright©2009PearsonPrenticeHall.Allrightsreserved.InflationTargeting:

ProsandConsAdvantagesRelationshipbetweentargetandgoalisnotascriticalforsuccessEasilyunderstoodbythepublicHelpsavoidthetime-inconsistencyproblemsincepubliccanholdcentralbankaccountabletoacleargoalForcespolicymakerstocommunicategoalsanddiscussprogressregularly51Copyright©2009PearsonPrenticeHall.Allrightsreserved.InflationTargeting:

ProsandConsAdvantages(continued)AllowsforbetterprivatesectorplanningsincethecentralbankmustcommunicateInflationgoalsRegularmeasuresofinflationHowtoachievethegoalsgivencurrentconditionsExplanationofdeviationsfromtargetsPerformancehasbeengood!52Copyright©2009PearsonPrenticeHall.Allrightsreserved.InflationTargeting:

ProsandConsDisadvantagesSignalofprogressisdelayedAffectsofpolicymaynotberealizedforseveralquarters.PolicytendstopromotetoomuchrigidityLimitspolicymakersabilitytoreacttounforeseeneventsUsually“flexibletargeting”isimplemented,focusingonseveralkeyvariablesandtargetsmodifiedasneeded53Copyright©2009PearsonPrenticeHall.Allrightsreserved.InflationTargeting:

ProsandConsDisadvantagesPotentialforincreasingoutputfluctuationsMayleadtoatightpolicytocheckinflationattheexpenseofoutput,althoughpolicymakersusuallypayattentiontooutputUsuallyaccompaniedbyloweconomicgrowthProbablytruewhengettinginflationundercontrolHowever,economyrebounds54Copyright©2009PearsonPrenticeHall.Allrightsreserved.InsidetheFed:

BenBernankeandInflationTargetingWell-authoredontheimplementationandimpactofinflationtargetingwhileaprofessoratPrinceton.Speechin2004suggeststheFedwillcontinuetomovetowardinflationtargeting.However,commentssincetakingovertheFedsuggesthewilllookforconsensusherebeforeacting.55Copyright©2009PearsonPrenticeHall.Allrightsreserved.Tactics:ChoosingtheInstrumentNowweturntohowmonetarypolicyisconductedonadailybasis.First,understandthatapolicyinstrument(forexample,thefedfundsrate)respondstotheFed’stools.Therearetwobasictypesofinstruments:reserveaggregatesandshort-terminterestrates.Anintermediatetarget(forexample,along-terminterestrate)isnotdirectlyaffectedbyaFedtool,butislinkedtoactualgoals(e.g.,long-runpricestability).56Copyright©2009PearsonPrenticeHall.Allrightsreserved.Tactics:ChoosingtheInstrumentThekeythingtounderstandisthattheFedcanonlyattempttoimplementitsgoalsusingeitherreserveaggregatesorshort-terminterestrates.Notboth.Forexample,supposetheFedbelieveditcouldachieveitsemploymentgoalsbyachievinga3%growthrateinnonborrowedreserves.Orbysettingthefedfundsrateat4%.Whycan’ttheFeddoboth?57Copyright©2009PearsonPrenticeHall.Allrightsreserved.NonborrowedReservesTargetTheFedtargetsnonborrowedreserves,shiftingtoeitherRd'

orRd''

Thefederalfundsratewillthenfluctuatetoeitheri'ori''58Copyright©2009PearsonPrenticeHall.Allrightsreserved.FederalFundsRateTargetTheFedtargetsthefederalfundsrate,shiftingtoeitheri'ori''ThenonborrowedreservesshifttoeitherRd'

orRd''59Copyright©2009PearsonPrenticeHall.Allrightsreserved.CriteriaforChoosingPolicyInstrumentsCriteriaforPolicyInstrumentsObservableandMeasurableSomeareobservable,butwithalag(eg.reserveaggregates)ControllableControllabilityisnotclear-cut.Bothaggregatesandinterestrateshaveuncontrollablecomponents.PredictableeffectongoalsGenerally,short-termratesofferthebestlinkstom