UNDERSTANDING OPEN MARKET OPERATIONS docx

[...]... Eurodollars Using borrowed reserves Government securities or other acceptable collateral, a Open market operations allow the Open Market depository institution also can—as a last resort—borrow Desk at the Federal Reserve Bank of New York to adjust Understanding Open Market Operations 17 Understanding Open Market Operations / 17 the volume of nonborrowed reserves in the system reserves, many factors outside... the record is made available to the public about five years later Understanding Open Market Operations / 29 30 / Understanding Open Market Operations F I V E Implementing Monetary Policy—I The domestic policy directive, discussed above, guides Reserve staffs in New York and at the Board in the Open Market Desk’s daily operations in the market Washington, D.C develop reserve objectives consistent for... Reserve eases monetary policy Understanding Open Market Operations 11 Understanding Open Market Operations / 11 The outlook for the economy and expectations Figure 2-3 The Transmission of Monetary Policy of households and businesses play a central role in the magnitude and timing of monetary policy effects on the economy Households’ own experience with the cyclical Federal Open Market Committee rise and... meet- the Board staff’s Blue Book Understanding Open Market Operations / 25 Figure 4-1 At FOMC meetings, before the Committee The FOMC Deliberations begins the discussion of the economic outlook and monetary policy, the Manager of the System Open Market Preparation for the FOMC Meeting Account reports on (1) foreign exchange market developments, along with any System open market transactions in foreign... causing changes in interest rates, financial markets to movements of interest rates—higher interest rates and the dollar exchange rate, monetary policy actions tend to reduce the value of household assets, other have important effects on output, employment and prices things remaining the same 10 Understanding Open Market Operations 10 / Understanding Open Market Operations Monetary Policy Influence on the... in the economy are developing in line with of monetary policy and in assessing the need for those contemplated by the FOMC changes in it The Domestic Open Market Desk at the 24 / Understanding Open Market Operations F O U R Decisions of the Federal Open Market Committee The decision-making process for U.S monetary policy ings, roughly six weeks apart, during the course of a centers on the FOMC’s annual... occasions, the check clearing system facilitates the movement of these Open Market Desk may be obliged to engage in significant checks around the country The Reserve Banks credit a operations to offset the effects of large swings in float on bank’s reserve account at the Fed for checks the supply of nonborrowed reserves Understanding Open Market Operations / 21 Foreign Central Bank Transactions Deposit Flows... cur- tends to go down rency, which usually expands in times of political and While open market operations allow the Federal economic uncertainty abroad Indeed, in recent years, Reserve to exert control over the supply of nonborrowed foreign demand for U.S dollars, especially from high- 18 / Understanding Open Market Operations inflation economies of Eastern Europe and other regions, Figure 3-2 has... of the supply els of reserve supply and demand in the market, and the of nonborrowed reserves, serve as the core elements for expected level of reserves that would be consistent with judging reserve conditions and for conducting day-to- maintaining the intended federal funds rate In other day open market operations words, to conduct its open market operations, the Desk needs not only daily estimates... funds market They are also particularly active in the erally, the U.S Treasury, banks, business corporations markets for RPs, Eurodollars and bankers acceptances and finance companies—can bridge differences in the Many banks act as dealers in money market securities, timing of receipts and payments or can defer long-term while many others offer short-term investment services 8 / Understanding Open Market . in the open market. Indeed, open mar- ket operations are, by far, the most powerful and flexible tool of monetary policy. Focusing on open market operations, . influences money and financial market conditions that, in turn, affect output, jobs and prices. This edition of Understanding Open Market Operations seeks to explain