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Economics of Global Money Markets - Essay Example

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The focus will be on the experience of Federal Reserve with traditional policy tools. The discussion will be on drawbacks and efficiency of the less familiar monetary policy forms. Furthermore,…
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Economics of Global Money Markets
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"Economics of Global Money Markets"

Download file to see previous pages owered the discount rates and extended term loans and in the following month by decreasing the set targets for the rates of federal reserve by 50 points. As economic indications weaknesses advanced over successive months, the rates of federal funds target was lowered by 325 points by the committee, leaving it at 2% by the end of 2008 (Oulette, 2014). During the summer, the rates were held constant by the committee as it watched financial and economic conditions. As the crisis grew worse at the fall of summer, finance committee responded through lowering rates of federal funds target by 100 points, with this coming unparalleled cut of interest rate by central banks. In December, evidenced by dramatic slowdown, the committee lowered its target at a range of 0-25 points. Up to date the range as remained with no interference. In spite of monetary policy easing, under performance in credit markets worsened off. Towards the end of 2008 and at the start of 2009, the Fed took astonishing measures to give support and liquidity to functioning of credit markets inclusive of establishment of various emergencies loaning facilities and extension or creation of currency exchange agreements with fourteen central banks globally.
As a regulator of all banks, the Fed led the largest America bank holding firms’ stress test, creating stage for firms to increase their capital (working mother, pp.66).The actions with interventions from policy makers in America and globally assisted to stabilize financial world markets, which later checked on the weakening of real economy with deflationary pressure emergence.Though it is probable that worse results had been stopped, the destruction to the economy was already severe. The rate of unemployment in the U.S rose from 6% in 2008 to 9% by 2009 as inflation decreased sharply. With the increase of the crisis, and rate of federal funds on the lower bound, the committee resorted to non-traditional boundaries approaches to counter the crisis. When ...Download file to see next pagesRead More
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