Chapter 10 Flashcards
balance sheet
: A list of the assets and liabilities of a
bank (or firm) that balances: Total assets equal
total liabilities plus capital.
bubbles
A situation in which the price of an asset differs from its fundamental market value.
deposit facility
The European Central Bank’s standing facility in which banks are paid a fixed
interest rate 100 basis points below the target
financing rate.
discount loans
A bank’s borrowings from the Federal
Reserve System.
discount rate
The interest rate that the Federal
Reserve charges banks on discount loans.
discount window
The Federal Reserve facility at
which discount loans are made to banks.
dual mandate
: A central bank mandate in which
there are two equal objectives, price stability and
maximum employment.
dynamic open market operations
Open market operations intended to change the level of reserves
and the monetary base.
excess reserves
Reserves in excess of required
reserves.
federal funds rate
The interest rate on overnight
loans of deposits at the Federal Reserve.
forward guidance
A strategy in which the Fed
committed to keep the federal funds rate at zero
hierarchical mandate
A mandate for the central
bank that puts the goal of price stability first,
but as long as it is achieved other goals can be
pursued.
inflation targeting
A monetary policy strategy that
involves public announcement of a medium-term
numerical target for inflation
lender of last resort
Provider of reserves to financial
institutions when no one else would provide
them to prevent a financial crisis.
longer term refinancing operations
A second category
of open market operations by the European
Central Bank that are similar to the Fed’s
outright purchase of securities.
macroprudential regulation
: Regulatory policy to
affect what is happening in credit markets in
the aggregate.
conventional monetary policy tools
Three tools of
monetary policy—open market operations,
discount lending, and reserve requirements—
the Federal Reserve uses to control the money
supply and interest rates.
main refifancing operations
Operations that involve
weekly reverse transactions (purchase or sale
of eligible assets under repurchase agreements
or credit operations against eligible assets as
collateral) that are reversed within two weeks
and are the primary monetary policy tool of the
European Central Bank.
marginal lending facility
The European Central
Bank’s standing lending facility in which banks
can borrow (against eligible collateral) overnight loans from the national central bank at a
rate 100 basis points above the target financing
rate.
marginal lending rate
The interest rate charged by
the European Central Bank for borrowing at its
marginal lending facility
matched sale purchase
An arrangement
whereby the Fed sells securities and the
buyer agrees to sell them back to the Fed in
the near future; sometimes called a reverse
repo. 2
transaction costs
The time and money spent
trying to exchange financial assets, goods, or
services.
natural rate of output
natural rate of unemployment
The rate of unemployment consistent with full employment at which the
demand for labor equals the supply of labor.
