Running Head: FINANCE AND ACCOUNTING

Ireland Central Bank and Federal Reserve of US

Name

School

Date
Running Head: FINANCE AND ACCOUNTING

The Current Unemployment, Inflation, and Economic Growth [GDP] rates) of

Central Bank of Ireland and the Federal Reserve of U.S

Monitoring the monetary policy is the major function of the Federal Reserve of U.S

whereby it controls and maintains inflation levels and price stability respectively. To accomplish

these, a core inflation rate is set so as to attain maximum employment and a healthy economic

growth rate. The current Federal Reserve inflation rate was 1.7 percent which is below the set

target of 2.0 percent. The real unemployment rate as at June 2017 was 8.6 percent which was

almost double the widely reported unemployment rate of 4.4 percent. The economic growth rate

measures how fast an economy is growing. This is driven by personal consumption, government

spending, business investment and the net trade. The current Federal Reserve economic growth

rate as at June 2017 stands at 2.6 percent.

On the other hand, the responsibility of Central Bank of Ireland is to protect both

central banking and financial regulations. According to the Central Bank of Ireland statistics, the

growth rate as at June 2017 stands at 6.1 percent. Moreover, the inflation rate was reported at -

0.4 percent as at June 2017. Lastly the current unemployment rate of the Republic of Ireland is

6.4 percent.

From the above discussion, the rate of inflation of the Republic of Ireland is lower

than that of USA. This means that price of commodities is more stable in Ireland than in the

USA. The percentage of labor force without jobs is high in the USA than in Ireland. Lastly, the

rate of growth of the Republic of Ireland is higher than that of the USA.
Running Head: FINANCE AND ACCOUNTING

Tools for Controlling the Money Supply

The monetary policy tools are used to control the amounts of funds in the banking

system. The Federal Reserve of U.S makes use of open market operations, the discount rate and

the reserve requirements to monitor the money supply, (Amadeo, 2017) while the Central Bank of

Ireland uses open market operations only to control its money supply.

The Central Bank of Ireland and the Federal Reserve of U.S use open market

operations to control money supply. This is managed by expansion or contraction whereby they

sell or purchase government bonds for cash. Purchasing of the government bond would expand

the total monetary base while selling would ultimately contract the monetary base.

Discount rate is used to control the borrowing levels of commercial banks thus

dictating the demand for money by the consumers. Reduced interest rate would increase the

demand for money by consumers while increasing interest rates would reduce money demand.

Therefore, the price levels are greatly influenced by the changes in interest rate. Increased

spending caused by an increase demand for money may lead to an increase in price levels. On

the other hand, price levels would be reduced by decreasing the demand for money. Any

expectation of a decrease in price levels would increase money demand or decrease if they

expect an increase in price levels.

Under the reserve requirements, the Federal Reserve of U.S holds a fraction of all

deposits of the commercial banks as cash. The total money supply is altered by varying the

proportion of the total cash held by the commercial banks with the required percentage of the

total deposits (Amadeo, 2017). The monetary base is increased by decreasing the requirements

and decreased by increasing the reserve requirements.

Running Head: FINANCE AND ACCOUNTING

How Monetary Authority uses Money Supply Control Tools to Impact

Macroeconomic Performance

The Federal Reserve of US makes use of monetary policy tools to change the level of

economic activity without direct control over the rate of economic growth. The Federal Reserve

changes the monetary base and reserves of commercial banks through open market operations

and changing reserve requirements to change the supply of money in the economy. After the

change in money supply, the Federal Reserve targets interest rates to change the borrowing

behavior of businesses and consumers thus change the overall demand for money. This

influences the overall growth rate of the GDP.

For an undesirable rapid economic growth rate, the Federal Reserve undertakes

restrictive monetary policy measures to slow economic growth and dampen inflationary

pressures. On the other hand, during recession, the Federal Reserve would implement an

expansionary monetary policy measure to accelerate economic growth and lower the

unemployment rate.

The central bank of Ireland being a member of the Eurosystem adopted a single

monetary policy tool to monitor the inflationary rates as depicted by the close to but below 2

percent inflation level. The bank uses open market operations to monitor the rates of interest, and

manage the markets’ liquidity situation. When carrying out open market operations, Eurosystem

issues debt certificates, reverse and outright transactions use, forex swaps and collects fixed-term

deposits tools.

Banking Regulations Comparison

Regulations are the guidelines that govern the formation, operations and acquisition

of the financial institutions must adopt in their operations. The Federal Reserve has been given
Running Head: FINANCE AND ACCOUNTING

the mandate to implement laws to monitor a wide range of banking and the financial institutions

activities in the U.S, member banks and the foreign owned banks. The Federal Reserve of the

U.S also ensures that banks act in the public interest by developing federal laws that governs

consumer credit.

On the other hand, the Central Bank of Ireland regulates more than 10,000 firms

offering financial services in Ireland and overseas. The regulations main objective is ensuring

financial stability, consumer protection and market. The bank uses different regulatory tools

which include the supervision of banks within a Single Supervisory Mechanism framework and

monitoring of banks regulatory returns.

Conclusion

The Central Bank of Ireland has partnered with the European banks to form one body,

Eurosystem. The overall performance of the Central Bank is high as it contributes to Eurosystem

monetary policy to stabilize prices. The bank is responsible for implementing policy decisions

and managing liquidity levels in Ireland. On the other hand, the Federal Reserve takes control of

about 5000 bank holding companies and any foreign banks in the United States. This mandate

has improved the performance of the Federal Reserve over time. The Central bank of Ireland

should embrace more than one monetary tool like the Federal Reserve to help monitor the

commercial banks activities.

Running Head: FINANCE AND ACCOUNTING

References

Piccoli S., (2015), five functions of Federal Reserve Banks, Retrieved from:

http://www.newsmax.com/Finance/Money-Wire/Federal-Reserve-banks-functions/

2015/07/15/id/657216/

Amadeo K., (2017), Central Banks’ Function and Role, Retrieved from:

https://www.thebalance.com/what-is-a-central-bank-definition-function-and-role-3305827

Amadeo K., (2017), Federal Reserve System: Its 4 Functions and How It Works, Retrieved from:

https://www.thebalance.com/the-federal-reserve-system-and-its-function3306001