A Study On Measuring The Central Bank Independence

The Federal Reserve was established as the Central bank of the United States in late 1913. Commonly referred to as “the Fed,” it is responsible for managing currency, money supply, and interest rates (Lecture, 10/6). While the bank is given much autonomy over its actions, it is not independent from the US government in that the legislature is responsible for allowing the Federal Reserve to act freely, and elected officials appoint central bankers. These are two primary mechanisms for keeping the Fed in check, insuring that it is acting in the nation’s best interest (O, 286). Countries with central banks that are independent from their governments tend

“Provide Summary Level Paper (limit 10 pages) “Purpose and Practice of Inflation Forecasting by Nation” – for insertion after the “Measures of Inflation”

The Federal Reserve System was created by Congress in 1913 and passed the Federal Reserve Act in order to provide for a safer and more flexible banking and monetary system. According to the changing needs of the system, its objectives have been changing throughout the history of the Fed. At first, “its original purposes were to give the country an elastic currency, provide facilities for discounting commercial credits, and improve the supervision of the banking system under a decentralized bank.” (The Federal Reserve System, 1984, 1). Prior to its establishment (the Fed), the supply of bank credit and money was inelastic, thus resulting in an irregular flow of credit and money, and contributed to unstable economic development. These objectives were aspects economic policies and national monetary. However, through time, stability and growth of the economy, high employment levels, stability in the purchasing power of the dollar, and reasonable balance in transactions with foreign currencies have become to be recognized as primary objectives of the governmental economic policy.

One form of direct control can be exercised by adjusting the legal reserve ratio (the proportion of its deposits that a member bank must hold in its reserve account), and as a result, increasing or decreasing the amount of new loans that the commercial banks can make. Because loans give rise to new deposits, the possible money supply is, in this way, expanded or reduced. This policy tool has not been used too much in recent years. The money supply may also be influenced through manipulation of the discount rate, which is the rate if interest charged by the Federal Reserve banks on short-term secured loans to member banks. Since these loans are typically sought to maintain reserves at their required level, an increase in the cost of such loans has an effect similar to that of increasing the reserve requirement. The classic method of indirect control is through open-market operations, first widely used in the 1920s and now used daily to make some adjustment to the market. Federal Reserve bank sales or purchases of securities on the open market tend to reduce or increase the size of commercial bank reserves. When the Federal Reserve sells securities, the purchasers pay for them with checks drawn on their deposits, thereby reducing the reserves of the banks on which the checks are drawn. The three instruments of control explained above have been conceded to be more effective in preventing inflation in times of high economic activity than in bringing about revival from a

The concept alone of a central banking system has been around long before the Federal Reserve Act of 1913 was passed. In 1791, Treasury Secretary Alexander Hamilton encouraged Congress to create the First Bank of the United States. Several Americans opposed of it, as they felt somewhat uncomfortable of one bank having all the power. After the bank’s 20 year term in 1811, Congress decided not to renew it by merely one vote. Afterwards there have been multiple other attempts to create a central bank, but they have never succeeded in the long run. That is until The Federal Reserve Act of 1913. President Woodrow Wilson was the one who passed the famous Federal Reserve Act of 1913. If it had not been for the passing of this law, the United States may have never had a central bank, which is a vital part of our economy.

By December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law, it stood as a classic example of compromise a decentralized central bank that balanced the competing intrigues of private banks and populist sentiment. Afore the incipient central bank could commence operations, the Reserve Bank Operating Committee, comprised of Treasury Secretary William McAdoo, Secretary of Agriculture David Houston, and Comptroller of the Currency John Skelton Williams, had the arduous task of building a working institution around the bare bones of the incipient law. In reaction to the Great Despondence, Congress passed the Banking Act of 1933, better kenned as the Glass-Steagall Act, calling for the disseverment of commercial and

The Federal Reserve System (hereafter referred as the Fed) is the United States’ central bank (Federal Reserve.gov 1). Formed by the United States Congress in 1913 and signed into law by President Woodrow Wilson, the intention behind its creation was to offer a safer, more stable, and more flexible financial and monetary system for the United States (Federal Reserve.gov 1). Similar to other industrialized states, the United States’ Fed acts as a central bank designed to meet particular requirements of the country’s financial system and multifaceted economy. However, in contrast to a majority of other central banks, the United States’ Fed is a form of decentralized central bank. This paper provides a discussion on how the Fed work, the

Created in 1913, the Federal Reserve System was established to serve as the central bank of the United States and to provide the nation with a save, flexible, and stable monetary and financial system. Over the years, the Fed's role in banking and the economy has expanded, but its focus has remained the same (Federal Reserve Bank ). However, other countries also have their own central banks, such as the Bank of England, the Bank of Canada, and the Bank of Mexico. Because of this, economic policies were set almost exclusively with that country’s interests in mind—devaluation of currency to cheapen a country’s exports was common practice. Nevertheless, every country had protectionist views on banking policy based solely on national self-interest contributed to and deepened the results of the Great Depression.

• Ensure high levels of employment by conducting the national monetary policy through influencing the economy’s money and credit conditions in pursuit of stable prices and full

The President of Bartavia wants to enact expansionary fiscal policy with the intention of manipulating inflation and unemployment. Although Bartavia is nearly employing all of its resources in production and extremely close to full employment level, the President is still concerned about the small percentage that is unemployed. Unemployment is the state of a person without a job or a reliable salary or income. Inflation and unemployment are characteristics that are closely monitored to indicate the economic performance of a country. As the economic advisor to the president, I would strongly advise against implementing this policy. Currently, the economy is not in a recession making the trade-offs associated with economic expansion counter intuitive. In addition, the Phillips Curve demonstrates the inverse relationship between inflation and unemployment, making the need for expansionary action unnecessary right now. Finally, Okun 's Law shows how this policy would effect Bartavia 's GDP via the sacrifice ratio. These three reasons show that the long-run consequences outweigh the short-run benefits of expansionary fiscal policy. Therefore, I implore the President to avoid implementing the expansionary policy.

The Reserve Bank signs an agreement called the Policy Targets Agreement with the Government through Financial Minister to maintain the inflation between one and

Legislative institutions depended with the mission of oversight of the financial framework are ill-suited to address macroeconomic concerns. For instance, Federal Reserve is a reason for more prominent flimsiness and instability than more noteworthy request and certainty. Cutting or bringing interest rates up in with a perspective to pumping a lot of liquidity into the budgetary framework or, in actuality, limiting cash supply keeps market components from setting the right cost of cash and assigning capital proficiently. However, it is not in any case responsible to people in general, as it is chosen in a roundabout way and responsible to open everywhere through a long chain of appointment. Money related markets can

The impact of the change interest rates and inflation has a persistent impact on the well being of any given society. For this purpose it is the understanding that each individual in society should have an understanding of what such changes bring fourth for the man on the street. In this introduction, we are going to introduce certain key points to remember when dealing with interest rate- and inflation changes.

c. Change of its official interest rate: The rate of interest at which the Commercial banks takes loans from the Central Bank is decreased by the central bank. By doing this the bank has to pay lower interest rate to the central bank and hence the money

A bank’s capacity of handling and intermediating large financial flows depend crucially on its capital base and quality of risk management. To enhance this capacity in banks in Bangladesh, BB has introduced mandatory Basel II based capital requirements for banks from 2010 after a year in trial run; steps have also been taken to develop and strengthen risk assessment capacities including forward looking stress testing in the banks as well as in BB supervision departments. To sum up, BB’s routine half yearly monetary policy formulation exercises aimed at maintaining