Financial Markets and Institutions (2-downloads)

Open Market Operations

231

Lending to Banks

231

Reserve Requirements

231

The Price Stability Goal and the Nominal Anchor

232

The Role of a Nominal Anchor

232

The Time-Inconsistency Problem

232

Other Goals of Monetary Policy

233

High Employment

233

Economic Growth

234

Stability of Financial Markets

234

Interest-Rate Stability

234

Stability in Foreign Exchange Markets

235

Should Price Stability Be the Primary Goal of Monetary Policy?

235

Hierarchical vs. Dual Mandates

235

Price Stability as the Primary, Long-Run Goal of Monetary Policy

236

Inflation Targeting

237

Inflation Targeting in New Zealand, Canada, and the United Kingdom

237

Advantages of Inflation Targeting

238

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xvi

Contents in Detail

■ GLOBAL

The European Central Bank’s Monetary Policy Strategy

240

Disadvantages of Inflation Targeting

240

■ INSIDE THE FED

Chairman Bernanke and Inflation Targeting

242

Central Banks’ Response to Asset-Price Bubbles: Lessons from 

the 2007–2009 Financial Crisis

243

Two Types of Asset-Price Bubbles

243

Should Central Banks Respond to Bubbles?

244

Should Monetary Policy Try to Prick Asset-Price Bubbles?

244

Are Other Types of Policy Responses Appropriate?

245

Tactics: Choosing the Policy Instrument

246

Criteria for Choosing the Policy Instrument

248

■ THE PRACTICING MANAGER

Using a Fed Watcher

249

Summary

250

Key Terms

251

Questions

251

Quantitative Problems

252

Web Exercises

252

Web Appendices

253

PART FIVE FINANCIAL MARKETS

Chapter 11 The Money Markets

254

Preview

254

The Money Markets Defined

255

Why Do We Need the Money Markets?

255

Money Market Cost Advantages

256

The Purpose of the Money Markets

257

Who Participates in the Money Markets?

258

U.S. Treasury Department

258

Federal Reserve System

258

Commercial Banks

258

Businesses

259

Investment and Securities Firms

260

Individuals

260

Money Market Instruments

260

Treasury Bills

261

■ CASE

Discounting the Price of Treasury Securities to Pay the Interest

261

■ MINI-CASE

Treasury Bill Auctions Go Haywire

264

Federal Funds

264

Repurchase Agreements

266

Negotiable Certificates of Deposit

267

Commercial Paper

268

Banker’s Acceptances

271

Eurodollars

271

■ GLOBAL

Ironic Birth of the Eurodollar Market

272

Comparing Money Market Securities

273