Chapter12MonetaryPolicyCopyright 2006byTheMcGraw-Hill Companies,Inc.All rights reservedMcGraw-Hilrwin
McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12 Monetary Policy
CONTENSa12.1TheFederal Reserve's MonetaryPolicy Toolbox12.2LinkingTools toObjectivesMakingChoices12.3AguidetoCentralBankInterestRates:Taylor Rule21-2
21-2 CONTENS 12.1 The Federal Reserve’s Monetary Policy Toolbox 12.2 Linking Tools to Objectives: - Making Choices 12.3 A guide to Central Bank Interest Rates: Taylor Rule
CONTENSC12.4 Interest Rate Target, Inflation Target andInflation Target12.5MonetaryPolicyTransmissionMechanism12.6Challenges forModernMonetaryPolicymakers21-3
21-3 CONTENS 12.4 Interest Rate Target, Inflation Target and Inflation Target 12.5 Monetary Policy Transmission Mechanism 12.6 Challenges for Modern Monetary Policymakers
The Fed's Monetary PolicyCToolboxThe Federal Reserve has three monetary policytools, also known as monetary policy instrumentsThe target federal funds rate, or the interest rate atwhich banks make overnight loans to each otherThe discount rate, or the interest rate the FedchargesontheloansitmakestobanksThe reserve reguirement, or the level of balances abank is required to hold either as vault cash ondeposit or at a Federal Reserve Bank21-4
21-4 The Fed’s Monetary Policy Toolbox • The Federal Reserve has three monetary policy tools, also known as monetary policy instruments • The target federal funds rate, or the interest rate at which banks make overnight loans to each other • The discount rate, or the interest rate the Fed charges on the loans it makes to banks • The reserve requirement, or the level of balances a bank is required to hold either as vault cash on deposit or at a Federal Reserve Bank
12.1 The Fed's Monetary PolicyaToolbox1.The federal funds rate is the rate atwhich banks lend reserves to each otherovernight, it is determined in the market.ratherthan being controlled by the FedTarget Fed Funds Rate Web LinkMarket (Effective) Fed Funds Rate WebLink21-5
21-5 1. The federal funds rate is the rate at which banks lend reserves to each other overnight, it is determined in the market, rather than being controlled by the Fed • Target Fed Funds Rate Web Link • Market (Effective) Fed Funds Rate Web Link 12.1 The Fed’s Monetary Policy Toolbox