Abstract
The third and most powerful tool of monetary policy is open market operations. This involves the buying and selling of Treasury securities in the open market. As the Fed pays for securities that it buys, it puts funds into the banking system, which raises bank reserves and causes lower interest rates. Conversely, as the Fed is paid for securities that it sells, it draws funds from the banking system, which reduces reserves and causes an increase in interest rates.
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Notes
- 1.
- 2.
- 3.
For a more detailed discussion of Volcker’s fight against inflation, see William L. Silber [3], pp. 125, 180, 237.
- 4.
Paul A. Volcker succeeded Arthur F. Burns in 1979, after the brief 18-month chairmanship of G. William Miller, who was appointed to the Fed in 1978 by President Carter and subsequently moved to the position of Secretary of the Treasury in 1979. Miller was a businessman who had been CEO of Textron and was the only non-economist to serve as Chairman since William McChesney Martin, who served 1951–1970.
- 5.
www.federalreserve.gov/releases, Nov. 1, 2005; Dec. 12, 2005; June 29, 2006.
- 6.
www.federalreserve.gov/newsevents/press/monetary/, October 24, 2012.
- 7.
Such trades are conducted by “The Foreign Desk,” also located at the Federal Reserve Bank of New York. It is the currency trading department for the Federal Reserve and the Treasury.
- 8.
McCulloch v. Maryland, 17 U.S. (4 Wheat) 316 (1819). For discussion, see J. K. Lieberman [10].
- 9.
See Chap. 1, p. 9.
- 10.
First National Bank v. Fellows, 244 U.S. 416 (1917).
- 11.
Norman v. Baltimore & Ohio Railroad Co., 294 U.S. 240 (1935).
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Wallace, W.H. (2013). How Is American Monetary Policy Made, and How Does It Affect the Domestic and Global Economies?. In: The American Monetary System. Springer, Cham. https://doi.org/10.1007/978-3-319-02907-8_12
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DOI: https://doi.org/10.1007/978-3-319-02907-8_12
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