Tiền tệ ngân hàng FTU - Lý thuyết chương 10

Content • • Introduction • The Federal Reserve’s conventional policy toolbox • The Fed funds rate • Tools of the Fed and the Fed • funds rate • The Federal funds rate and • • the market for reserves • Open market operations • • Discount policy • Reserve requirements • • Monetary policy tools of the • European Central Bank • Desirable features of a policy • instrument Lecture 10 Monetary Policy Linkages between tools, policy instruments, intermediate targets, and goals Monetary targeting in different countries Inflation targeting Inflation targeting in different countries Unconventional policy tools Quantitative easing Credit easing Making an effective exit 2 Readings Introduction • Mishkin (2021), The Economics of Money, Banking, and Financial Markets, 13th edition, Pearson, Chapters 16 + 17 • Cecchetti and Schoenholtz (2010), Money, Banking, and Financial Markets, 3rd edition, McGraw-Hill, Chapter 18 3 • Interest rates play a central role in all of our lives. – They are the cost of borrowing and the reward for lending. – Higher rates restrict growth of credit. • The business press is constantly speculating about whether the FOMC will change its target. 4 Introduction Introduction • Between September 2007 and December 2008, the FOMC lowered its target for the federal funds rate 10 times. • This was the first time since the 1930s that the Fed hit the zero bound on the nominal federal funds rate. – Banks can always hold cash paying zero interest. – They will never choose to lend their reserves at a negative nominal rate. – The nominal policy rate therefore faces a zero bound: it will never fall below zero. • Even setting the federal fund rate target at essentially zero wasn’t enough to stabilize the economy. • The crisis had undermined the willingness and ability of major financial intermediaries to lend. • In this environment the Fed moved to substitute itself for dysfunctional intermediaries and markets. – This significantly altered the Fed’s balance sheet. 5 6 Introduction • To steady the financial system and the economy after the crisis, the Fed utilized its principal conventional policy tools: – The federal funds rate target, – The rate for discount window lending, – The required reserve rate, and – The deposit rate. • They did so to the fullest extent possible to support economic activity. 7 8 Introduction Introduction • In these lectures we will: • Policymakers then proceeded to develop and use a variety of unconventional policy tools including: – See how the Fed uses its policy tools, both conventional and unconventional to achieve economic stability. – See that those tools are quite similar to those of other central banks. – Focus on three links: – Commitments to keep interest rates low over time, and – Massive purchases of risky assets in thin, fragile markets. • These unconventional measures added meaningfully to the conventional actions. • Between the central bank’s balance sheet and its policy tools; • Between the policy tools and monetary policy objectives; and • Between monetary policy and the real economy. 9 The Federal Reserve’s Conventional Policy Toolbox 10 The Federal Reserve’s Conventional Policy Toolbox • The Fed has four conventional monetary policy tools, also known as monetary policy instruments: • In looking at day-to-day monetary policy, it is essential that we understand the institutional structure of the central bank and financial markets. • We will begin with the Fed and financial markets in the U.S. • In the next section, we will look at the ECB’s operating procedures to see how they differ. 1. The target federal funds rate, 2. The discount rate, 3. The deposit rate, and 4. The reserve requirement. • Each of these tools are related to several of the central bank’s functions and objectives. 11 12 The Federal Reserve’s Conventional Policy Toolbox The Target Federal Fund Rate and Open Market Operations • The target federal fund rate is the FOMC’s primary policy instrument. • The federal funds rate is the rate at which banks lend reserves to each other over night. – It is determined in the market and not controlled by the Fed. • We will distinguish between the target federal funds rate set by the FOMC and the market federal funds rate, at which transactions between banks take place. 13 The Target Federal Fund Rate and Open Market Operations 14 The Target Federal Fund Rate and Open Market Operations • On any given day, banks target the level of reserves they would like to hold at the close of business. – That may leave them with more or less reserves than they want. • This gives rise to a market for reserves. – Some banks can lend out excess reserves. – Some banks will borrow to cover a shortfall. 15 • Without this market, banks would need to hold substantial quantities of excess reserves as insurance against shortfalls. • These transactions are all bilateral agreements between two banks. • Loans are unsecured so the borrowing bank must be credit worthy in the eyes of the lending bank. 16 The Target Federal Fund Rate and Open Market Operations The Target Federal Fund Rate and Open Market Operations • If the Fed wanted to, it could force the market federal funds rate to equal the target rate. • However, policymakers believe that the federal funds market provides valuable information about the health of specific banks. • So the Fed allows the federal funds rate to fluctuate around its target in a channel or corridor defined by the discount rate and the deposit rate. 17 The Target Federal Fund Rate and Open Market Operations 18 The Target Federal Fund Rate and Open Market Operations • The Fed targets an interest rate at the same time that it wants to allow an interbank lending market to flourish. • Instead of fixing the interest rate, the Fed controls the federal funds rate by manipulating the quantity of reserves. • The Fed does this by using open market operations. 19 • We can use a standard supply-anddemand graph to analyze the market in which banks borrow and lend reserves. 20 The Market For Reserves and the Federal Funds Rate Demand in the Market for Reserves • Demand and Supply in the Market for Reserves • What happens to the quantity of reserves demanded by banks, holding everything else constant, as the federal funds rate changes? • Excess reserves are insurance against deposit outflows – The cost of holding these is the interest rate that could have been earned minus the interest rate that is paid on these reserves, ier • Since the fall of 2008 the Fed has paid interest on reserves at a level that is set at a fixed amount below the federal funds rate target. • When the federal funds rate is above the rate paid on excess reserves, ier, as the federal funds rate decreases, the opportunity cost of holding excess reserves falls and the quantity of reserves demanded rises • Downward sloping demand curve that becomes flat (infinitely elastic) at ier 21 The Target Federal Fund Rate and Open Market Operations 22 The Target Federal Fund Rate and Open Market Operations • Keeping the market federal funds rate at the target means balancing supply and demand for reserves at that target rate. • The staff of the Open Market Trading Desk does this by: • When the federal fund rate climbs to the discount rate, banks may borrow from the Fed at the discount rate. • When the market federal funds rate falls to the deposit rate, banks can deposit their excess reserves at the Fed at the deposit rate. • The Fed can adjust the width of the socalled channel around the target federal funds rate. – Estimating the demand for reserves at the target rate each morning, and – Supplying that quantity for the day. • This means the daily supply for reserves is vertical until the market federal funds rate reaches the discount rate. 23 24