Tools of Monetary Policy Chapter 15 Tools of Monetary Policy

Tools of Monetary Policy Open market operations (公開市場操作) Affect the quantity of reserves and the monetary base Changes in borrowed reserves(改變借入準備，又稱貼現窗口政策) Affect the monetary base Changes in reserve requirements (應提準備改變) Affect the money multiplier Federal funds rate (聯邦基金市場利率): the interest rate on overnight loans of reserves from one bank to another Primary instrument of monetary policy

Demand in the Market for Reserves (市場對準備金的需求) What happens to the quantity of reserves demanded by banks, holding everything else constant, as the federal funds rate changes(聯邦基金市場利率改變對準備金需求的影響)? 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 (持有超額準備的成本是應賺而未能賺得的報酬率減超額準報酬率)

Demand in the Market for Reserves 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.(自從2008年秋天聯準會開始對準備金支付利息， 利率固定，略低於聯邦基金利率) 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

Supply in the Market for Reserves Two components: non-borrowed and borrowed reserves (非借入與借入準備) Cost of borrowing from the Fed is the discount rate (向Fed借入資金的成本是貼現率) Borrowing from the Fed is a substitute for borrowing from other banks (向Fed借入可以向其他同業借入取代) If iff < id, ,(聯邦基金利率小於貼現窗口利率) then banks will not borrow from the Fed and borrowed reserves are zero The supply curve will be vertical(即準備金決定於Fed與市場利率無關) As iff rises above id, banks will borrow more and more at id, and re-lend at iff The supply curve is horizontal (perfectly elastic) at id(供給曲線在貼現率上為水平線，彈性無窮大)

FIGURE 1 Equilibrium in the Market for Reserves

Affecting the Federal Funds Rate (影響聯邦基金利率的因素) Effects of open an market operation depends on whether the supply curve initially intersects the demand curve in its downward sloped section versus its flat section. An open market purchase causes the federal funds rate to fall (公開市場買進(供給線右移會導致聯邦基金利率下跌); whereas an open market sale causes the federal funds rate to rise (when intersection occurs at the downward sloped section).

Affecting the Federal Funds Rate (cont’d) Open market operations have no effect on the federal funds rate when intersection occurs at the flat section of the demand curve.(如果供需均衡點發生在需求線為水平階段， 公開市場操作沒有效果),

Affecting the Federal Funds Rate (cont’d) If the intersection of supply and demand occurs on the vertical section of the supply curve, a change in the discount rate will have no effect on the federal funds rate. (如果供需均衡點發生在供給線為垂直階段,改變貼現率不會對聯邦基金利率造成影響) If the intersection of supply and demand occurs on the horizontal section of the supply curve, a change in the discount rate shifts that portion of the supply curve and the federal funds rate may either rise or fall depending on the change in the discount rate(如果供需均衡點發生在供給線為水平線時， 改變貼現率，若貼現率上升(或下降)會使得聯邦基金利率上升(下降)

Affecting the Federal Funds Rate (cont’d) When the Fed raises reserve requirement, the federal funds rate rises (當Fed調升應提準備比率(需求曲線右移)，會導致聯邦基金利率上升) and when the Fed decreases reserve requirement, the federal funds rate falls.

FIGURE 2 Response to an Open Market Operation

FIGURE 3 Response to a Change in the Discount Rate

FIGURE 4 Response to a Change in Required Reserves

Open Market Operations Dynamic open market operations(動態公開市場操作 Defensive open market operations (防衛式公開市場操作) Primary dealers (主要的交易商) TRAPS (Trading Room Automated Processing System) (交易室自動處理系統) Repurchase agreements (再購置協定) Matched sale-purchase agreements

Advantages of Open Market Operations The Fed has complete control over the volume (Fed能夠完全掌控) Flexible and precise (伸縮性及精確性) Easily reversed (可逆性) Quickly implemented (迅速執行)

Discount Policy Discount window (貼現窗口) Primary credit (主要信用)— : standing lending facility Lombard facility(倫巴德機制)(凡在央行設有活期存款帳戶之金融機構，均可以合格擔保品申貸，利率為重貼現率) Secondary credit (次級信用) Seasonal credit (季節性信用) Lender of last resort to prevent financial panics(最後貸款者可預防金融風暴) Creates moral hazard problem (但也可能製造更多的道德危險問題)

FIGURE 5 How the Federal Reserve’s Operating Procedures Limit Fluctuations in the Federal Funds Rate

Advantages and Disadvantages of Discount Policy Used to perform role of lender of last resort(通常扮演最後貸款者角色) Important during the subprime financial crisis of 2007-2008. Cannot be controlled by the Fed; the decision maker is the bank (Fed無法掌控，而決定於銀行) Discount facility is used as a backup facility to prevent the federal funds rate from rising too far above the target (貼現裝置通常是備而不用)

Reserve Requirements (應提準備政策) Depository Institutions Deregulation(自由化) and Monetary Control Act of 1980 sets the reserve requirement the same for all depository institutions 3% of the first $48.3 million of checkable deposits; 10% of checkable deposits over $48.3 million The Fed can vary the 10% requirement between 8% to 14%

Disadvantages of Reserve Requirements (應提準備政策的缺點) No longer binding for most banks (大多數銀行不會將準備金正巧等於應提準備，所以效果大打折扣) Can cause liquidity problems(會導致流動性問題) Increases uncertainty for banks (增加不確定性)

Monetary Policy Tools of the European Central Bank(歐洲央行) Open market operations(公開市場操作) Main refinancing operations(主要的再融資操作) Weekly reverse transactions(2個星期反向交易如同repo交易) Longer-term refinancing operations (長期的再融資操作)(在公開市場買進或賣出債券) Lending to banks Marginal lending facility/marginal lending rate(邊際貸款機制(overnight loan)/邊際貸款利率(100bp above the target financing rate))(等於最高貸款利率) Deposit facility(接受存款利率以100bp below the target financing rate)

Monetary Policy Tools of the European Central Bank (cont’d) Reserve Requirements(應提準備) 2% of the total amount of checking deposits and other short-term deposits Pays interest on those deposits so cost of complying(遵法成本) is low

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