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Monetary policy: the Federal Reserve Bank of the U.S.A - Essay Example

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In the paper “Monetary policy: the Federal Reserve Bank of the U.S.A.” the author focuses on the monetary policy of the Federal Reserve Bank of the U.S.A. particularly during and after the global financial crisis. This paper summarizes the article “Monetary Policy and the Federal Reserve”…
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Monetary policy: the Federal Reserve Bank of the U.S.A
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Monetary policy: the Federal Reserve Bank of the U.S.A

Reserve: Current Policy and Conditions”).
In Open Market Operation (OMO), the central bank buys securities issued by the U.S. treasury. In case of purchasing the new securities the bank has to issue new currency to expand the reserve base. This is done in order to expand the monetary base of the economy so that the financial institutions can provide loans to the business enterprises and raise credit. The second conventional policy as pointed out in the article is the reserve requirements ratio. This is a measure by which the central bank controls the overall level of deposits that commercial banks maintain with it. This is a key technique in which the liquid cash is maintained within the economy. This policy is however not exercised actively by the bank and the rates had not been revised in the past ten fifteen years. In the current economic scenario, banks are required to maintain an overall of 0% to 10% (Labonte, “Monetary Policy and the Federal Reserve: Current Policy and Conditions”). The exact value is determined by the size of the banks. Ever since 2008 the government has decided to pay interests on the excess reserves. Finally, discount policy is another such mechanism in which the central bank promotes internal lending and borrowing among banks. This is a temporary arrangement for borrowing money by financial institutions Commercial financial institutions can discount their own assets to the central bank and raise assets (Labonte, “Monetary Policy and the Federal Reserve: Current Policy and Conditions”). ... Read More
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