Brief Outline of Topics Covered in Lecture 4
Chapter 4 Understanding Interest Rates [continued]
The Distinction between Real and Nominal Interest Rates
Nominal interest rates
Ex-ante real rates
Ex-post real rates
Chapter 13 Structure of Central Banks and the Federal Reserve System [continued]
Origins of the Federal Reserve System
- Distribute power to geographic regions, the public sector, the private sector, the business sector, and the financial sector
Structure of the Federal Reserve System
- Federal Reserve Banks
- Member Banks
- Board of Governors of the Federal Reserve System
- Federal Open Market Committee (FOMC)
- The Federal Advisory Council
Chapter 14 Multiple Deposit Creation and the Money Supply Process [Unlikely to get this far]
Three Players in the Money Supply Process
The Fed’s Balance Sheet
- Liabilities
- Assets
Control of the Monetary Base
- Open Market Operations with Bank
- Open Market Operations with an Individual and shifts between
The Money Supply Model and the Money Multiplier
- Deriving the Money Multiplier
Factors That Determine the Money Multiplier
- Changes in the Required Reserve Ratio, r
- Changes in the Currency Ratio, c = C/D
- Changes in the Excess Reserves Ratio, e = ER/D
Additional Factors That Determine the Money Supply
- Changes in the Nonborrowed Monetary Base, MBn
- Changes in Borrowed Reserves, BR, from the Fed
- Currency and Deposits
Extra Reading:
How the Fed Prepares Its Minutes, by Kristina Peterson, WSJ: Minutes for Federal Open Market Committee meetings are prepared with meticulous care. Central bank officials and staff know that the public will scrutinize every word and the minutes are carefully crafted to convey a certain message.
The process commences even before the meeting begins with a Board of Governors staffer writing up a summary of the staff’s economic and financial analyses, which are delivered at the start of each meeting.
Several senior staff members collaborate to plan the write-up of the meaty part of the meeting: the Fed officials’ policy negotiations. They discuss the meeting’s “major themes” and how they should be covered in the minutes, according to an article in the spring 2005 issue of the Federal Reserve Bulletin.
One officer from the Board’s Division of Monetary Affairs, chosen on a rotating basis, writes up the policy discussion, in part relying on a transcript that is ready by the day after the meeting. Other staff members review the summary before sending it to Fed officials during the week following the meeting.
The Fed’s chairman is the first policy maker to review the minutes. After receiving the Fed chief’s approval, the minutes are sent to all meeting participants for comments and a revised draft is prepared by the following week.
The final draft is ready by the end of the second week. The Fed officials who can vote on interest-rate moves–the seven-person Board of Governors and five of the 12 regional bank presidents–have about four calendar days to vote to approve the minutes. The voting period ends at noon the day before the minutes are released, 21 days after the meeting.
The Fed decided to start releasing minutes three weeks after policy meetings in late 2004. Before that, the minutes were released with a longer lag. In its earliest days, the Fed kept its minutes confidential and only released a “Record of Policy Actions” once a year. Over time, the Fed decided to release more information on a more-frequent basis.
The central bank now releases full transcripts of meetings with a five-year lag.
