Monetary Policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment.
1.The Federal Reserve System
The Federal Reserve System (also known as the Federal Reserve, and informally as The Fed) is the central banking system of the United States. It was created in 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907.Over time, the roles and responsibilities of the Federal Reserve System have expanded and its structure has evolved. Events such as the Great Depression were major factors leading to changes in the system.Its duties today, according to official Federal Reserve documentation, are to conduct the nation's monetary policy, supervise and regulate banking institutions, maintain the stability of the financial system and provide financial services to depository institutions, the U.S. government, and foreign official institutions.
-Structure of the fed
The Federal Reserve System's structure is composed of the presidentially appointed Board of Governors (or Federal Reserve Board), the Federal Open Market Committee (FOMC), twelve regional Federal Reserve Banks located in major cities throughout the nation, numerous other private U.S. member banks and various advisory councils.The FOMC is the committee responsible for setting monetary policy and consists of all seven members of the Board of Governors and the twelve regional bank presidents, though only five bank presidents vote at any given time. The responsibilities of the central bank are divided into several separate and independent parts, some private and some public. The result is a structure that is considered unique among central banks. It is also unusual in that an entity outside of the central bank, namely the United States Department of the Treasury, creates the currency used
- Functions of the fed
According to the Board of Governors, the Federal Reserve is independent within government in that "its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government." However, its authority is derived from the U.S. Congress and is subject to congressional oversight. Additionally, the members of the Board of Governors, including its chairman and vice-chairman, are chosen by the President and confirmed by Congress. The government also exercises some control over the Federal Reserve by appointing and setting the salaries of the system's highest-level employees. Thus the Federal Reserve has both private and public aspects.The U.S. Government receives all of the system's annual profits, after a statutory dividend of 6% on member banks' capital investment is paid, and an account surplus is maintained. The Federal Reserve transferred $78.4 billion to the U.S. Treasury in 2010.
The purpose of the paper is to discuss how monetary policy decisions made by the board or monetary policy committee of a central bank can be implemented. It distinguishes between the polar extremes of direct and indirect methods of implementation, and explains why indirect methods are generally preferred. It describes the circumstances in which various elements of a central bank’s balance sheet can grow very quickly, threatening to cause the growth rate of central bank money to rise to levels inconsistent with the objectives of monetary policy, and discusses what offsetting measures the central bank can take to contain the growth of central bank money. It describes in detail how open market operations can be conducted, and discusses techniques of intervention in foreign exchange markets. Finally, it reviews the usefulness of direct controls of instruments of monetary policy, and discusses the conditions in which such controls might be needed and how they can best be designed.
- Policy Goals
The Government has established a target annual inflation rate of 2% for the British economy. This target takes into account the understanding that too little inflation – an indication that the economy is stagnant and not growing – is just as detrimental as too much inflation. Additionally, a 2% rate of growth provides favourable conditions for economic growth while maintaining price stability and supporting strong employment levels.
- Operating Procedures
Although the experiences and the choices made in individual countries vary widely, a number of common trends in the modernisation of operating procedures can be detected. First, the deepening of financial markets and the growth of non-bank intermediation have induced, if not forced, central banks to increase the market orientation of their instruments. In most cases (but with a few notable exceptions identified below), a higher proportion of reserves is now supplied through operations in open markets, with the use of standing facilities limited to providing marginal accommodation or serving as emergency finance. This, however, does not imply an erosion of the power of standing facilities in affecting liquidity conditions; indeed, it is often the marginal changes in bank liquidity which have the greatest impact on interest rates. Secondly, the increased importance and flexibility of the price mechanism in the new market environment have induced many central banks to focus more on interest rates rather than bank reserves in trying to influence liquidity. A third trend is that, reduced market segmentation, and thus the greater ease and speed with which interest rate changes are transmitted across the entire spectrum of yields, has enabled central banks to concentrate on the very short end of the yield curve where, given payment and settlement arrangements, their actions tend to have the greatest impact. The move to real time gross settlement systems in several countries may increase the short-term focus of policy implementation even further. Fourthly, the greater market orientation of the central banks' instruments has been associated with a preference for flexible instruments. In the highly volatile financial environment marking several of the emerging market economies, flexibility in the design of the policy instruments may be particularly important. Much of this greater flexibility has come from the growing use of repurchase operations. Finally, awareness of the important role of market psychology and expectations has increased markedly. This has implications for the degree of transparency which central banks need to influence interest rates, their reliance on market information in formulating policies and their own tactics in signalling policy changes to the market.
- Foreign Exchange Market Intervention
Purpose of Foreign Exchange Intervention
The Department of the Treasury and the Federal Reserve, which are the U.S. monetary authorities, occasionally intervene in the foreign exchange (FX) market to counter disorderly market conditions. Since the breakdown of the Bretton Woods system in 1971, the United States has used FX intervention both to slow rapid exchange rate moves and to signal the U.S. monetary authorities' view that the exchange rate did not reflect fundamental economic conditions. U.S. FX intervention became much less frequent in the late 1990s. The United States intervened in the FX market on eight different days in 1995, but only twice from August 1995 through December 2006.
Scope of the FX Market
The foreign exchange market is a network of financial institutions and brokers in which individuals, businesses, banks and governments buy and sell the currencies of different countries. They do so in order to finance international trade, invest or do business abroad, or speculate on currency price changes. On average, the equivalent of about $1.9 trillion in different currencies is traded daily in the FX market around the world.
The foreign exchange market is a network of financial institutions and brokers in which individuals, businesses, banks and governments buy and sell the currencies of different countries. They do so in order to finance international trade, invest or do business abroad, or speculate on currency price changes. On average, the equivalent of about $1.9 trillion in different currencies is traded daily in the FX market around the world.
The Effects of Exchange Rate Changes
An exchange rate is the price of one foreign currency in terms of another currency. Foreign exchange rates are of particular concern to governments because changes in FX rates affect the value of products and financial instruments. As a result, unexpected or large changes can affect the health of nations' markets and financial systems. Exchange rate changes also impact a nation’s international investment flows, as well as export and import prices. These factors, in turn, can influence inflation and economic growth.
3.Monetary Policy and Equilibrium Income นโยบายการเงินและรายได้ดุลยภาพ
- Money Demand
- Money Monetary Policy
Money, the banking system and monetary policy must work together smoothly for the economy to run well. Money makes it possible for people to exchange goods and services without having to rely on a system of bartering. Banking provides a means for savers to lend their money to borrowers and earn interest in the process, and it gives borrowers a place to go for loans. The aim of monetary policy is to ensure that there is sufficient money in the economy to keep it growing, but not so much that the economy overheats. When the economy overheats, the result is inflation. Inflation—too much money chasing too few goods—creates an inefficient price system. It also distorts decision-making, reduces productivity and lowers the economy's long-term rate of growth. This results in lower living standards for everyone.
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