Lecture 10 Monetary Policy 2 .pdf

Lecture 10 Monetary Policy 2 Monday, 23 September 2024 5:43 PM  This is because if it goes lower it would be negative, this leaves room for movement but still maintains positive cash rates. 1. European banks used this method 2. Central bank acts as a lender of last resort 3. Cause the...

Lecture 10 Monetary Policy 2 Monday, 23 September 2024 5:43 PM  This is because if it goes lower it would be negative, this leaves room for movement but still maintains positive cash rates. 1. European banks used this method 2. Central bank acts as a lender of last resort 3. Cause the balance sheet of the CB and banking system to change dramatically. RBA is like the banker of the banks. Government bonds Dollar notes, must maintain the value and stability of the currency making it  Government bonds t an obligation: liability. In th bank  Depositor earns 2% for depositing funds Banks repackage these funds as a loan to a new customer at a 7% interest rate = 5% profit. During economic crisis once liquid assets may become illiquid. During economic downturn customer may be unable to repay loans, decreasing the banks cash supply and restricting further ability to lend money. In this case the CB may step in as a lender of last resort, meaning that the bank can take out loans with them (using risky collateral). Allowing it to maintain usual activity. (also allows for the bank to maintain a cash flow). he financial crisis and the collapse of the Lehman brothers this program was offered to ks. What is it? Essentially, the CB will buy assets from banks (bonds, securities) and pay via adding the money into its Exchange Settlement Account, the CB doesn’t have to physically E E  What is it? Essentially, the CB will buy assets from banks (bonds, securities) and pay via adding the money into its Exchange Settlement Account, the CB doesn’t have to physically "pay" for this, instead they are electronically adding the funds. This injection of funds allows for banks to lend out more money and at lower interest rates. Eg. Not to change interest rates until unemployment rates are below a certain level. Efficacy: ability to perform a task.  E - Ma Efficacy: ability to perform a task. aking borrowing more expensive.