Foreign Exchange Intervention
foreign exchange intervention
Macroeconomics questions-can you help?
ADSENSE
As a member of the Federal Reserve you are speaking with a group of newly elected members of Congress to explain your operations. The members of Congress have asked you to address the following issues.
a. The Federal Reserve has traditionally conducted open market operations through the purchase and sale of government bonds. In principle, could the Federal Reserve conduct monetary policy through the purchase and sale of stocks on the New York Stock Exchange? Do you see any possible drawbacks to such a policy? [Hint: Think about open market purchases of government bonds.]
b. Suppose the Federal Reserve purchased gold or foreign currency. How would this purchase affect the domestic money supply? [Hint: Has to do with the FED's interventions on foreign exchange markets]
Can you help me, lead me in the right directions? I am not necessarily looking for answers.
Thanks for any help
While the Fed could “try” to conduct monetary policy through the purchase and sale of stocks there would be huge problems with that system.
What stock will be chosen, why would investors buy that stock, why would investors sell that stock, how much money is necessary to cause a significant change in interest rates?OMO deals with the sale of gov’t bonds which are secure long term investments… Once you purchase the bond the value (actual rate does not change) but as the Fed buys up bonds (decreasing money supply) over all rates begin to increase as borrowers try to get “scarce” dollars this encourages greater savings or Fed sells bonds (increasing money supply) and as rates drop it draws in more borrowers.
b. By purchasing foreign currency the Fed lowers the value of the dollar in comparison to that currency – decreasing the supply of said foreign currency that is replaced by the dollar. Although the overall result is an increase in the money supply the result would be a targeted inflation, that is products from that particular country would become more expensive, our products to that country would be cheaper… I’m not as sure about gold but I would suspect that the purchasing of gold would decrease the global value of the dollar…
90at9, October 9, 2009: US$ intervention
|
|
Does Foreign Exchange Intervention Work? $17.99 … |
|
|
Foreign Exchange Intervention as a Monetary Policy Instrument: Evidence for Inflation Targeting Countries (ZEW Economic Studies) $69.05 Foreign exchange intervention is frequently being used by central banks in countries which have a floating exchange rate. Most theoretical monetary policy models, however, do not take this phenomenon into account. This book contributes to close this gap between theory and practice by interpreting foreign exchange intervention as an additional monetary policy instrument for inflation targeting cent… |
|
|
Central bank intervention, the current account, and exchange rates.: An article from: International Advances in Economic Research $5.95 This digital document is an article from International Advances in Economic Research, published by Atlantic Economic Society on August 1, 2003. The length of the article is 5790 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available in your Amazon.com Digital Locker immediately after purchase. You can view it with any web br… |
