Professional Documents
Culture Documents
of Monetary Policy
7-1
Chapter Preview
7-2
Chapter Preview
7-3
Chapter Preview
7-4
Origins of the Federal
Reserve System
7-5
Federal Reserve Act of 1913
7-6
Structure of the Federal Reserve System
7-7
Structure of the Federal Reserve System
7-8
Structure of the Federal Reserve System
7-9
Twelve Federal Reserve Banks
7-10
Structure of the Federal Reserve System
7-11
Federal Reserve Banks
7-12
Federal Reserve Bank Functions:
General
• Clear checks
• Issue new currency and remove
damaged currency
• Evaluate bank mergers and expansions
• Lender to member banks
• Liaison between local community and the Federal
Reserve System
• Perform bank examinations
• Collect and examine data on local business
conditions
7-13
Federal Reserve Bank Functions:
Monetary Policy
7-14
The FRB of New York
7-15
The FRB of New York
7-16
The FRB of New York
7-17
Member Banks
7-18
Member Banks
7-19
Board of Governors
7-20
The research staff
7-22
Federal Open Market Committee
7-23
Federal Open Market
Committee Meeting
7-24
Inside the Fed: the books
7-25
Chairman of the
Federal Reserve System
7-26
How Independent is the Fed?
7-27
How Independent is the Fed?
Other Evidence
7-28
The European Central Bank
7-29
The European Central Bank
7-30
The European Central Bank
7-31
The European Central Bank
7-32
The European Central Bank
7-33
Structure and Independence of Other
Foreign Central Banks
7-34
Bank of Canada
• Founded in 1934
• Directors are appointed by the government for
three-year terms, and they appoint a governor for
a seven-year term.
• A governing council is the policy-making group
comparable to the FOMC.
• In 1967, ultimate monetary authority was given to
the government. However, this authority has
never been exercised to date.
7-35
Bank of England
• Founded in 1694
• The “Court” (like our BOG) consists of the governor, two
deputy governors (five-year terms), and 16 nonexecutive
directors (three-year terms).
• The Monetary Policy committee compares with the U.S.
FOMC, consisting of the governor, deputy governors,
two other central bank officials, plus four outside
economic experts.
• The Bank was the least independent of the central banks,
until 1997, when it was granted authority to set
interest rates.
• The government can step in under “extreme”
circumstances, but has never done so yet.
7-36
Bank of Japan (Nippon Ginko)
• Founded in 1882
• The Policy Board sets monetary policy, and
consists of the governor, two vice governors, and
six outside members. All serve five-year terms.
• The Bank of Japan Law (1998) gave the Bank
considerable instrument and goal independence.
• Japan’s Ministry of Japan can exert authority
through its budgetary approval of the Bank’s non-
monetary spending.
7-37
Trend toward Independence
7-38
Explaining Central Bank Behavior
7-39
Should the Fed Be Independent?
7-41
Case for Independence
7-42
Case for Independence
7-43
Case for Independence
7-44
Case Against Independence
7-45
Case Against Independence
7-47
Chapter Summary
7-49
Chapter Summary (cont.)
7-50
Chapter Summary (cont.)
7-51