What are the different types of monetary policy?
In the US, the federal reserve system uses five different types of currency policy. Five types of monetary policy are requirements for bank reserve, federal funds, free market operations, discount rate, foreign currency operations. The federal reserve system uses these types of monetary policy to manage the economic conditions in the country. Other countries can use a combination of policies that are similar, depending on their type of economy.
The first type of monetary policy is a set of requirements for a bank reserve that the federal reserve system requires banks to hold. A bank reserve is the minimum amount of money that the bank is obliged to keep on the bank's account. This is money that cannot be distributed to customers as loans or used for other purposes. When the federal reserve system wants to stimulate the economy, it reduces the request for a banking reserve. When the federal reserve system wants to introduce a more restrictive monetary policy, it increases the request for a banking reserve.
Federal market with funds JE Short -term borrowing market between banks. In fact, it is just a night loan. When the federal reserve system wants to deter this loans and loans, it will increase the interest rate on the federal funds market. If it wants to increase this type of loan, the federal reserve system will reduce the interest rate.
One of the other types of currency policy tools used by the federal reserve system is the free market operations. Operations on the free market is the market in which the federal government sells or buys government securities such as US cash registers. Federal reserve system by buying government securities if it wants to reduce the interest rate on the open market. It sells securities when it wants to raise the interest rate.
When banks in a federal reserve borrow money directly from the reserve, it lends this money for a discount rate. When Federal Reserve wants to discourage banks from lending money from it, it increases interest SAZuba. When he wants to encourage banks to borrow money from the federal reserve system, the Fed reduces the discount rate.
The federal reserve system also uses foreign currency operations as one of its types of monetary policy. Federal reserve action on a foreign currency market affects the value of the US dollar. If the federal reserve system wants to increase the value of the dollar, it will sell a foreign currency to help increase the value of the dollar and make a foreign currency cheaper for Americans on foreign currency exchanges.