Download Homework Assignment 4

Homework Assignment 1
Economics 333
Money and Banking
Assigned: September 22nd , 2009
Due: September 29th , 2009
1. The oldest central bank in the world is the Riksbank, the central bank of Sweden.
Its role is described at this website Riksbank. Describe the design of the monetary
policy system and 4 components: i) independence; ii) decision making by
committee; iii) transparency and accountability; iv) monetary policy framework.
Use the website as an information source.
a.
Monetary Policy Framework: What is the monetary policy framework in
terms of the broad objective of monetary policy?
b.
Policy Independence: What is the interest rate set by the Riksbank? What
is the name of the committee that sets monetary policy?
c.
Personal Independence: Who chooses the member of the committee? How
long are the terms of service? Under what conditions can committee members be
removed?
d.
Revenue Independence: How is the Riksbank financed (see Riksbank Act,
Chapter 10, Article 4)?
e.
Decision Making by Committee - Who selects the members of the
monetary policy making committee?
f.
Transparency and Accountability – What was the most recent meeting of
the committee for which minutes are available?
2. During summer of 2006, China increased their reserve requirement for the
banking system while maintaining a fixed target for the interbank lending rate.
Draw a graph of the interbank market when a central bank increases the reserve
ratio while maintaining a fixed interest rate. What effect would such a policy have
on the monetary base? Assuming no excess reserves, what effect would such a
policy have on the money multiplier? Can we say what would be the effect on the
money supply?
3. You have information on currency in the hands of the non-bank public, demand
deposits, vault cash, and reserve deposits of banks at the central bank. Calculate
the M1 money multiplier for Japan for these 4 years. What has happened with the
money multiplier in Japan this year (2006) relative to previous years? Calculate
the Currency-Deposit ratio and the Reserve-Deposit Ratio for 2005 and 2006.
Interest rates rose in Japan between 2005 and 2006. Is this consistent with the
movements we saw in the money multiplier? [Hint: Remember, currency in the
hands of Nonbank Public is C and vault cash + deposits at the central bank is R].
BoJ
Jun-03
Jun-04
Jun-05
Jun-06
JP¥ bn
Currency in Hands
of Nonbank Public
¥ 68,240.30
¥ 68,520.00
¥ 70,482.30
¥ 71,801.70
¥
¥
¥
¥
Demand
Deposits
286,029.00
299,282.00
313,172.00
326,327.60
¥
¥
¥
¥
Vault
Cash
5,672.90
6,144.80
6,716.20
6,103.90
Deposits at
Central Bank
¥ 28,850.00
¥ 32,630.90
¥ 31,960.10
¥ 13,517.30