Economics of financial markets Central Banks
- Created by: AmyTSpokes
- Created on: 16-05-15 19:05
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- Central Banks
- What is a CB?
- not a bank in the common sense
- CB is a government authority
- performs monetary policy
- mostly independent from government
- CB monetary policy instruments
- (Old way) monetary bank control
- quota on banks for volume of lending
- (New way)
- Control short term interest rates
- Targets of monetary policy
- low inflation (indirect relationship between money, interest rates and inflation)
- low un-employment
- GDP growth
- (Old way) monetary bank control
- Paradigms
- Old
- CB is a monopolist. uses monopolist power to set interest rate
- New
- CB acts as market participant. in order to influence prices and quantities
- Old
- CB actions
- Lending via "Discount Window"
- CB lends directly to banks and sets the price at a discounted rate
- Open market operations
- CB buys or sells any assets in the open market. "market based" intervention
- repurchase agreements
- CB supplies repos to stabilize interest rates
- Lending via "Discount Window"
- CB functions
- Conducts monetary policy
- banker to commercial banks
- banker to government
- supervisor to banking system
- manager of national debt
- manager of foreign exchange reserves
- issuer of national currency
- What is a CB?
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