the governors are responsible for the monetary policy in the united states.
the governors are responsible for the monetary policy in the united states.
who is responsible for the monetary policy in the united states?
the governors
bullet::::2. "the tools of the federal reserve system": here, friedman discuss the fed’s tools of credit policy and criticizes the controls over margin requirements on security loans, opposes the direct controls on consumer installment credit, and refutes the controls on interest rates on demand and time deposits. then, he discusses the tools of monetary policy arguing that “open market operations alone are a sufficient and efficient tool for monetary policy. rediscounting is an anachronistic survival of an earlier day and an earlier need. variations in reserve requirements... share with rediscounting the property of being a technically poor instrument for controlling the stock of money. both should be eliminated or greatly altered.” in these regards, he explains how open market operations alone can ensure smoother and more precise control of the high-powered money notwithstanding whether monetary policy is implemented via the money stock or the interest rate. friedman gives historical examples in which the discount rate provided misleading signals about the stance of monetary policy. in addition, he argues that the discount rate introduces confusion between the effects of fed on monetary policy and the its effects on the credit markets. in this way, the discount rate diverges the attention from the main task of fed – the control of the stock of money. further on, friedman discusses variations of reserve requirements as a monetary policy tool. he claims that variable required reserves should be eliminated or should be set and kept at fixed level. according to him, the main defect of this tool is that it changes infrequently, which means it has drastic effects on the banks; it is difficult to reverse its changes; it needs to be offset by the open market operations with uncertain effects on the stock of money; and it affects the composition between earning and non-earning bank assets, thus, affecting bank profitability. hence, friedman concludes that open market operations should be "the" monetary policy instrument for several reasons: they are impersonal, they can be used continuously on a day-to-day basis, the operations can be reversed within a day, their amount can be varied, they need not be announced publicly so they do not cause any speculation about their future course, they do not affect bank profitability, they enable fed to determine the amount of high-powered money more precisely, and the link between fed’s actions and the stock of money is more direct and predictable.
a program for monetary stability
bullet::::4. "the goals and criteria of monetary policy": friedman reviews the us experience with the gold standard during the 19 and 20 century, criticizes the us gold policy and the role of gold in the us monetary system, and proposes abandoning the system of fixed exchange rates along with the fixed official price of gold. he claims that relying on discretion in monetary policy has produced unfortunate monetary consequences, i.e. continuous shifts in monetary policy caused by the political pressures on the central bank or the changes in the personal beliefs and opinions. also, discretion does not provide criteria for judging the performance of monetary policy. he refutes price stability as a relevant goal of monetary policy because, in the short-term, the link between money and price changes is loose and imperfectly known. another problem refers to the long and variable time-lags. hence, price stability would be a good guide to monetary policy if we knew the effects of non-monetary factors on prices, the exact time lag of present monetary actions, and the size of the effects of present monetary actions. therefore, he proposes monetary aggregates as a guide of monetary policy, because they are under direct control by the central bank. specifically, he proposes the fixed growth of the money stock suggesting an annual growth between 3 to 5%.
a program for monetary stability