Presentation on theme: "Economist and the Federal Reserve. What they do Economists at the Board conduct independent economic research and contribute substantially to the economic."— Presentation transcript:
Economist and the Federal Reserve
What they do Economists at the Board conduct independent economic research and contribute substantially to the economic forecasting and policy analysis used by the Board and the Federal Open Market Committee. Board economists are among the leading producers of papers published in professional journals and presented at various conferences. The research explores a full range of macro and micro topics, from large-scale econometric modeling to the economics of regulation. Board economists also work with members of the Board in the preparation of congressional testimony and other presentations, and provide technical advice as needed to the Board, the Federal Reserve Banks, and other central banks.
Responsibilities analysis and forecasting of developments in the domestic and international economies and financial markets analysis of options for regulatory decisions development and maintenance of relevant economic data conducting long-range research aimed at improving the theoretical and quantitative analysis used at the Board and by the economics profession generally
Eligibility Candidates must have a Ph.D. (or foreign equivalent) in economics, finance or a related discipline or be a Ph.D. candidate (or foreign equivalent) in economics, finance or a related discipline preparing to defend dissertation. Experience or expertise in macroeconomics, monetary economics, monetary policy, financial economics, international finance, or econometrics, as evidenced by research papers and/or thesis topics in these areas, required.
The Fed the Fed is the gatekeeper of the U.S. economy. It is the central bank of the United States -- it is the bank of banks and the bank of the U.S. government. The Fed regulates financial institutions, manages the nation's money and influences the economy. – By raising and lowering interest rates, creating money and using a few other tricks, the Fed can either stimulate or slow down the economy. – This manipulation helps maintain low inflation, high employment rates, and manufacturing output. The Fed dictates economic and monetary policies that have profound impacts on individuals in the U.S. and around the world
3 Main Functions The "Fed" has three main functions. They are to: – provide and maintain an effective payments system – supervise and regulate banking operations – conduct monetary policy.
The Components of the Monetary Aggregates The Federal Reserve publishes data on three monetary aggregates. The first, M1, is made up of types of money commonly used for payment, basically currency and checking deposits. The second, M2, includes M1 plus balances that generally are similar to transaction accounts and that, for the most part, can be converted fairly readily to M1 with little or no loss of principal. The M2 measure is thought to be held primarily by households. The third aggregate, M3, includes M2 plus certain accounts that are held by entities other than individuals and are issued by banks and thrift institutions to augment M2-type balances in meeting credit demands; it also includes balances in money market mutual funds held by institutional investors.
Aggregates The aggregates have had different roles in monetary policy as their reliability as guides has changed. The following details their principal components: M1 Currency (and traveler’s checks) –Demand deposits –NOW and similar interest-earning checking accounts M2 M1 –Savings deposits and money market deposit accounts –Small time deposits1 –Retail money market mutual fund balances2 M3 M2 –Large time deposits –Institutional money market mutual fund balances –Repurchase agreements –Eurodollars
Interest Rates Interest rates have frequently been proposed as a guide to policy, not only because of the role they play in a wide variety of spending decisions but also because information on interest rates is available on a real-time basis.
The Taylor Rule The “Taylor rule,” named after the prominent economist John Taylor another guide to assessing the proper stance of monetary policy. It relates the setting of the federal funds rate to the primary objectives of monetary policy
Foreign Exchange Rates Exchange rate movements are an important channel through which monetary policy affects the economy, and exchange rates tend to respond promptly to a change in the federal funds rate. Moreover, information on exchange rates, like information on interest rates, is available continuously throughout the day.
Open Market Operations The most important tool the Fed has to conduct monetary policy is the buying and selling of U.S. government securities, which is often referred to as open market operations. A Federal Open Market Committee administers the sale and purchase of U.S. government securities on the open market to influence short-term interest rates and growth of money and credit
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