theory this is meant to keep a two-term president from appointing all of the governors. FOMC Comprises 7 governors plus 5 reserve bank presidents All 12 of the reserve bank presidents attend the FOMC meetings but only 5 have voting rights. Makes decisions about open market operations Issues directions to the trading desk at the Federal Reserve Bank of NY where trades are executed. Open Market Operations are the most important policy tool that the Fed has for controlling the money supply. This makes the FOMC the focal point for policy making in the Federal Reserve System. Federal Reserve Banks The function of the Federal Reserve banks is to: Clear checks Issue new currency Withdraw damaged currency from circulation Administer and make discount loans to banks in their districts Evaluation proposed mergers and applications for banks to expand their activities Act as liaisons between the business community and the Federal Reserve System Examine bank holding companies and state-chartered member banks. Now we will go back to the independence ideas that I mentioned on Monday. First we have the two types of independence. These are: Instrument Independence and Goal Independence. Instrument independence This refers to the ability of the central bank to set monetary policy instruments Goal independence This refers to the ability of the central bank to set the goals of monetary policy. The book states that the Federal Reserve has both types of independence. I would contend that on the first point it has independence but I do not agree with the text on the second. Let’s look at the goals of the federal reserve system. In 1977 Congress passed an amendment to the Federal Reserve Act which states that the goals of monetary policy are:
theory this is meant to keep a two-term president from appointing all of the governors. FOMC Comprises 7 governors plus 5 reserve bank presidents All 12 of the reserve bank presidents attend the FOMC meetings but only 5 have voting rights. Makes decisions about open market operations Issues directions to the trading desk at the Federal Reserve Bank of NY where trades are executed. Open Market Operations are the most important policy tool that the Fed has for controlling the money supply. This makes the FOMC the focal point for policy making in the Federal Reserve System. Federal Reserve Banks The function of the Federal Reserve banks is to: Clear checks Issue new currency Withdraw damaged currency from circulation Administer and make discount loans to banks in their districts Evaluation proposed mergers and applications for banks to expand their activities Act as liaisons between the business community and the Federal Reserve System Examine bank holding companies and state-chartered member banks. Now we will go back to the independence ideas that I mentioned on Monday. First we have the two types of independence. These are: Instrument Independence and Goal Independence. Instrument independence This refers to the ability of the central bank to set monetary policy instruments Goal independence This refers to the ability of the central bank to set the goals of monetary policy. The book states that the Federal Reserve has both types of independence. I would contend that on the first point it has independence but I do not agree with the text on the second. Let’s look at the goals of the federal reserve system. In 1977 Congress passed an amendment to the Federal Reserve Act which states that the goals of monetary policy are: