ECO 205 Lecture Notes - Lecture 15: Federal Funds Rate, Open Market Operation, European Central Bank
Document Summary
This chapter examines the tools used by the federal reserve system to control the money supply and interest rates. Illustrate the market for reserves and demonstrate how changes in monetary policy can affect the federal funds rate. Summarize how conventional monetary policy tools are implemented and the advantages and limitations of each tool. Explain the key monetary policy tools that are used when conventional policy is no longer effective. Identify the distinctions and similarities between the monetary policy tools of the federal reserve and those of the. The market for reserves and the federal funds rate. Demand and supply in the market for reserves. The cost of holding these is the interest rate that could have been earned minus the interest rate that is paid on these reserves, ior. Since the fall of 2008, the fed has paid interest on reserves at a level that is set at a fixed amount below the federal funds rate target.
