Download The Commercial Banking Industry

Monetary Policy
I. The Federal Reserve System
– The Board of Governors
– Advisory Councils
• Federal Advisory Council
• Consumer Advisory Council
• Thrift Institutions Advisory Council
– The Federal Open Market Committee
– The Federal Reserve Banks
– Member Banks
II. Monetary Policy Instruments
A. General Control Instruments
•
•
•
•
Open Market Operations
Discount Policy
Change in Reserve Requirements
Moral Suasion
B. Selective Control Instruments
III. Monetary Theory
A. Classical Theory
Say’s law.
B. Keynesian Theory
It advocates an active role for the federal
government in correcting economic proboems.
• Stimulative monetary policy
Money supply
Interest rates
Aggregate spending
• Restrictive monetary policy
Money supply
Inflation
Interest rates
C. Monetarist Approach
• Quantity Theory
MV = PGQ,
where
M = money supply,
V = velocity of money,
PG = weighted average price level, and
Q = quantity of goods and services sold.
Q and V are assumed to be constant. P
if M
.
• Modern Quantity Theory
Q is not assumed to be constant.
M
Q
.
V changes in a predictable manner and is not related to
fluctuations in M.
D. Rational Expectations Theory
Changes in monetary policy are unlikely to have any
sustained positive impact on the economy.
IV. Policy Tradeoff
Phillips Curve
Inflation
Unemployment