Tag Archives: money and banking

By Eric Tymoigne Previous posts studied the balance sheet of the fed, definitions and relation to the balance sheet of the fed, and monetary-policy implementation. In this post, I will answer some FAQs about monetary policy and central banking. Each of them can be read independently. Q1: Does the Fed target/control/set the quantity of reserves and the quantity of money? The Fed does not set the quantity of reserves and does not control the money supply (M1). It sets the cost of reserves;...

By Eric Tymoigne For convenience, I have put the balance sheet of the Fed below. A previous post examined the balance sheet and another one provided important information about the meaning of reserves and other basic concepts and their relation to the balance sheet of the Fed. Now let’s look at monetary-policy implementation. What does the Fed do in terms of monetary policy and why? While details in operating procedures have changed through time, the Federal Funds rate (FFR) has...

By Eric Tymoigne (A quick note: I noticed that the M&B posts get posted on other blogs. If you want me to respond to you, you should comment at NEP.) MONETARY BASE AND THE BALANCE SHEET OF THE FED. The previous post examined the balance sheet of the central bank: Now that we have an understanding of how the balance sheet of the Federal Reserve works, it is possible to go into the details of how the Fed operates in the economy in terms of monetary policy. To understand what the Fed...

By Eric Tymoigne Central bank balance sheet and immediate implications The previous post reviewed basic balance-sheet mechanics. This post begins to apply them to the Federal Reserve System (Fed). Balance Sheet of the Federal Reserve System For analytical purpose, the balance sheet of the Fed can be presented as follows: Below is the actual balance sheet of the Federal Reserve System prior to the recent crisis (from Board of Governors’ series H4.1, Factors Affecting Reserve Balances). It...

By Eric Tymoigne I struggled a few years to get a Money and Banking (M&B) course together. It lacked coherency and students had difficulty linking the different parts of the class. A good part of the problem comes from the M&B textbooks that, besides having outdated presentations, are a disparate collection of chapters without a coherent core. So I gave up with textbooks and went my own way. The core of the financial system consists of financial documents and among them are balance...