Essays on Federal Funds Rate

1. The Financial Crisis: Avoidable but Inevitable Theoretically, the financial crisis could have been avoided as investigation findings revealed . Under the circumstances however, the crisis was an inevitable consequence of everything that was going. The Federal inquiry concluded that the 2008 financial crisis could have been avoided. The crisis was the result of “widespread failures in government regulation, corporate mismanagement and heedless risk-taking by Wall Street”. It was the result of “greed, ineptitude or both” on the part of government and the private sector. Among the persons found responsible for the crisis included Federal Reserve Chairman Alan Greenspan and, ...

The Federal Reserve has one of the most unique duties in the world. Tasked with keeping both employment high and inflation low, it is the only central banking authority in the world that performs both functions as its mission. Studies performed by A. Phillips describe the inverse relationship between unemployment and the inflation of real wages. The Federal Reserve and Congress enact policies to counteract the inverse nature of unemployment and inflation. The Fed achieves its goals with manipulation of monetary policy, which is the control of the monetary supply, while Congress controls fiscal policy to help achieve similar ...

Assignment 4

1. The Phillips Curve (a) The Output Gap and the Inflation Rate series are shown in figure 1. Using the Excel formula “=correl”, we find the correlation between these two variables to be -0.00206. The correlation coefficient ranges from -1 to 1, the closer the coefficient is to the extremes, the stronger is the linear relationship between the two variables. In this case, the correlation coefficient is close to zero, so there is almost no relationship between Ygap and Pi. Figure 1

The Output Gap and the Inflation Rate series in 1955 – 2015

(b) Figure 2 shows the Output Gap and the change in the Inflation Rate series. Again, using ...

Introduction

The United States established the Federal Reserve institution in 1913. This central bank was responsible for safeguarding the economy of the United States by raising and lowering the interest rates that the borrowers have to pay to the lenders (Grey, 2002). This paper will determine how exactly the Federal Reserve is controlling the interest rates. It also examines why the interest rates influence the broader economy of the U.S. However, before the establishment of the Federal Reserve Bank, there was economic panic, and this was caused by emergency banking that was the common events as the prospective investors would ...

Introduction

Monetary policy is the endeavor by the federal or state government to control the amount of money circulating within an economy. These control measures are undertaken to cub the instances of inflations or to control the interest rates to sustainable levels. Monetary policies can either be expansionary or contractionary. Expansionary monetary policies are meant to expand the supply of money to the economy thereby boosting the economic activities (Afonso, 2012). Expansionary monetary policies also lead to a reduction in average interest rates. Contractionary monetary policies, on the other hand, are macro-economic tools used by the federal or the state ...

Abstract

The Nelson – Siegel – Svensson model is one of the preferred methods by which investors determine the value of bonds in the long run and thus make informed guesses as to the viability of each investment option. It is an accurate method of prediction when an investment portfolio needs to be set up. In this paper, by using the Nelson – Siegel – Svensson process, an attempt will be made to inform investors like to the best option for a fixed income portfolio. The paper would demonstrate how the process is to be used and applied to the data related to treasury bonds ...

Question 1

The federal reserve bank is a major institution in the American’s economy and society designed to offer financial stability by maintaining currency flexibility. The Fed as consistently played a significant role in the Untied States economy and monetary policy since its establishment. The Fed established in 1913, therefore, its the roles and regulations go back only to the early years of the 20th century. For instance, the Fed came into play when a harsh economic crisis started in 2008. During this period the GDP shrank, unemployment increased and millions of Americans were worried about their futures. It was the role of ...

Executive summary

The recent global financial could be attributed to a number of factors. These factors include the general cyclical economic development; overheating of the credit market and who appeared his consequence of the mortgage crisis; high commodity prices (including oil); overheating of the stock market. The US mortgage crisis was the predecessor in occurred in two waves, first in 2007 and then in 2008. The 2008 crisis were not unique from the previous crises though it had many unique characteristics. Although the crisis started in the United States, it engulfed almost all countries of the world, and hardly any of them ...

U.S. Fiscal and Monetary Policy

Fiscal policy

Fiscal policy denotes the use of government spending and taxation in order to steer the economy to the desired direction at a point in time. There are two types of fiscal policies, and they include the contractionary and the expansionary fiscal policies. In contractionary fiscal policies, the government enacts policies aimed at reducing the production in the economy. These could entail an increase in tax and lowering the government expenditure in the economy. On the other hand, the expansionary fiscal policies entail the policies adopted by the government with a view of increasing the overall output ...

Introduction

In 2008, the world's beginning of the financial and economic crisis that emerged in the form of a strong reduction of the main economic indicators in most advanced economies, later grew into a global recession economy. The emergence of the crisis is associated with a number of factors: the general cyclical economic development; overheating of the credit market and who appeared his consequence of the mortgage crisis; high commodity prices (including oil); overheating of the stock market. The predecessor of the 2008 financial crisis was the US mortgage crisis, which in early 2007 affected the subprime mortgage. Second wave of mortgage ...

Monetary policy

Monetary policies denotes the actions taken by the central bank (Federal Reserve) in a bid to influence money availability in the economy with the aim of achieving the nation’s economic goals. Performance of the monetary policy mandate was given to the Fed when the Federal Reserve Act (1913) came into place. The tools used by the Fed to perform the monetary policy obligations include the reserve requirements, open market operations and the discount rate. In order to perform the roles effectively, they are divided in that the board of governors are charged with overseeing the reserve requirement while the ...

Higher Educational Establishment

Introduction Aggregate demand and interest rates, along with the actual economic growth and the prospects are the benchmarks of any Federal government. In order to control the economy, government uses monetary policies to analyze essential measures.

Open Market Operation

Open Market Operations involve purchase and selling of governmental securities which helps to stabilize inflation. The Federal funds rate is equal to the interest and lending rates, according to which financial institutions charge for the loans. The Domestic Open Market Operations are guided by the Federal Open Market Committee and continuing with the aid of strengthening the efforts to support economy recovery ...

Complexities of U.S. Financial System .University.. .professor.. U.S. Financial System U.S. Financial System is made up of numerous different markets for diverse products offered on a various trading platforms and exchanges. Among the many products traded are stocks or equities, fixed income securities, foreign exchange, commodities, derivatives etc. Financial market helps to keep the wheels of the economy moving by allowing individuals and businesses either to invest their excess funds in different products or to sell their products to raise cash when they want to. That is the market offers liquidity- the ease of buying and ...

The implementation of macroeconomic policies is done to achieve the government’s main aim of full employment and a stable economy through low inflation. The Phillips curve is an important tool in studying the relationship between these two parameters in an economy Inflation is occasioned by an increase in the average price of goods and services over time, while unemployment is the condition where someone actively seeks a job but gets none despite their willingness to accept the market wage rates on offer at the time. Philips, by analyzing unemployment data changes in the UK, observed that a stable curve ...

Introduction

Federal reserve rates is the interest rate moderates overnight borrowing between banks. On the other hand, discount rate is the rates that the Federal Reserve charges on funds that are borrowed by commercial banks from its reserves. The Federal Reserve has been revising the rates that it charges to bring control to the direction of the economy. The latest revision of the rates was done in 2008 where the federal funds rate was reduced to 0% while the discount rate was modified to 0.5%. The Federal Reserve uses the discount and the federal funds rate to control the ...

Fed and the Economy

For an economy that is in recession, the FED does not directly affect the output and the economy. Rather, it does so in an indirect manner through the lowering of the federal funds rate, which, in most cases is short-term in nature. Open market operations are employed in this case. These are usually meant for the bank reserves, otherwise referred to as the federal funds market. In such a case, it is a requirement that banks have a certain amount or more set aside for reserves (Maxwell, 2003, p.6).

The federal funds market

The amount of reserves a bank wants to hold is bound to vary with ...