Friday, November 1, 2019

Macroeconomic Policies Used by the Federal Reserve Essay - 5

Macroeconomic Policies Used by the Federal Reserve - Essay Example The alternative strategy actions that were set up intended to put more pressure towards the long-term interest rate achievement and to ensure that the overall monetary conditions of the country become improved. This includes bolstering the prices for residential properties and corporate equities (Kashyap & Stein, 2012, p. 266). Â  The Federal Reserve’s adoption of the open market operations involves buying of existing Treasury securities by the Federal Reserve in the secondary market (Bauer & Rudebusch, 2014, p. 234). The secondary markets are securities that have already been obtained and sold off to private investors. When buying the securities, the Federal Reserve ensures it does so but under the equivalence of an existing currency. This expands the Federal Reserve’s base and at the same time increases the ability of depository financial institutions to provide loans as well as expand their existing credit facilities (Bauer & Rudebusch, 2014, p. 234). Â  Normal open market operations involve functions are typically carried out through repurchasing agreements (D’Amico & King, 2013, p. 426). If the Federal Reserve wishes to remove liquidity or add the same liquidity during the normalization period. Repos, also known as repurchase agreements are contracts signed between two or more parties to purchase securities and then repurchase the same securities at a future date and price (D’Amico & King, 2013, p. 425). Repos are considered as an economic equivalent to a collateralized loan. Differences between the first and second transactions determine the interest rates accrued on the loan (Bauer & Rudebusch, 2014, p. 235). Â  

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