Money, Banking and Financial Markets: Central Banks and Monetary Policy Tools

A set of flashcards covering key concepts from the lecture on central banks and monetary policy tools.

Zero Lower Bound

The idea that a nominal interest rate cannot fall below zero.

Effective Lower Bound

The nominal interest rate level below which intermediaries and their customers will switch from bank deposits to holding cash.

FOMC

The Federal Open Market Committee, responsible for setting the federal funds rate.

Interest Rate on Reserve Balances (IORB rate)

The interest rate paid on reserves held by banks at the central bank.

Discount Rate

The interest rate charged to commercial banks for loans received from the Federal Reserve's discount window.

Quantitative Easing (QE)

A monetary policy where the central bank expands the supply of aggregate reserves beyond what is needed to maintain its policy rate target.

Inflation Targeting

A monetary policy strategy that involves public announcement of a numerical inflation target to promote price stability.

Taylor Rule

A guideline for setting interest rates based on rates of inflation and economic output.

Primary Credit

Short-term loans from the Fed to sound institutions at an interest rate higher than the IORB rate.

Secondary Credit

Loans to institutions that do not qualify for primary credit, at a higher discount rate.

Seasonal Credit

Loans created for small agricultural banks to manage cyclical changes in farmers' loans and deposits.

Targeted Asset Purchases (TAP)

Actions that alter the mix of assets held by the central bank to stimulate economic activity.

Forward Guidance

Central bank communication regarding future policy intentions to influence economic expectations.

Monetary Base

The total amount of a currency in circulation or in the central bank reserves.