Presentation on theme: "The ECB vs. The Fed By: Kostas Konstantinou Rafael Vera Kanut Yang Shuo Zhang."— Presentation transcript:
The ECB vs. The Fed By: Kostas Konstantinou Rafael Vera Kanut Yang Shuo Zhang
Introduction The purpose of this presentation is to give you a brief overview of the history, structure, objectives, and monetary policy strategies of The European Central Bank (ECB) and The Federal Reserve System (Fed).
History of The European Central Bank Officially established on June 1 st, 1998. Headquarters are located in Frankfurt, Germany. President is Jean-Claude Trichet. 13 Member countries: Belgium, Germany, Ireland, Greece, Spain, France, Italy, Luxembourg, The Netherlands, Austria, Portugal, Slovenia, and Finland. Currency: Euro (EUR), Exchange rate: 1 = $1.36
Structure of The ECB Modeled after the German Bundesbank. Governed by a six member Executive Board of Directors. Headed by a President and a Board of Governors. Comprised of The ECB and the Local Central Banks of the 27 European Union Member States.
Objectives of The ECB Three Main Objectives: Maintain Price Stability Support General Economic Policies of the European Union States Ensure an Open Market Economy
Monetary Policy of The ECB Price Stability is the main goal of The ECBs Monetary Policy. Why? Leads to less fluctuation of the price level. Reduces Inflation Risk Premium. Helps eliminate the real economic costs affected by distorted inflation.
Monetary Policy Instruments of The ECB Three Main Instruments: Open Market Operations: Important tool for managing interest rates, market liquidity, and signaling the next policy movement. Standard Facilities Minimum Reserves: Provide stability of money market interest rates.
History of The Federal Reserve System Founded by The United States Congress in 1913. Headquarters are located in Washington, D.C. Chairman is Ben Bernanke. 12 Federal Reserve District Banks: Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas, Kansas City, and San Francisco. Currency: U.S. Dollar (USD), $ Exchange rate: $1 =.73
Structure of The Fed Modeled after some of the oldest European central banks in history; such as, Swedens Riksbank (1668), the Bank of England (1694), and the Banque France (1800). Also, served as a loose model for the reestablishment of Germanys Bundesbank after WWII. Governed by The Federal Reserve Board of Governors, which includes the chairman, and The Federal Open Market Committee (FOMC). Comprised of the 12 Federal Reserve Banks and the member banks (mostly commercial banks).
Objectives of The Fed Four Main Objectives: Administer the U.S. Monetary Policy Supervise and regulate banking institutions Maintain the stability of the financial system Provide financial services to depository institutions, the U.S. government, and foreign official institutions Also, plays a major role in operating the nations payment system.
Monetary Policy of The Fed Promoting effectively maximum employment, stable prices, and moderate long-term interest rates is the main goal of The Feds Monetary Policy.
Monetary Policy Instruments of The Fed Three Main Instruments: Open Market Operations: Consist of the purchase of sale of U.S. Treasury and Federal Agency securities. Discount Rate: Discount Rate manipulation. Reserve Requirements: Defined as the amount of funds that a depository institution must hold in reserve in-order-to support specified deposit liabilities.
Critique & Conclusion As can be seen from our analysis, The ECB and The Fed are following similar Monetary Policy strategies. Some key similarities between the two Banks are: Price Stability is a priority. Similar Inflation Targets are set. Focus is placed on signaling their decisions regarding changes in short-term interest rates in advance.