the central bank s goals targets and operations

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1、6THECENTRALBANK’SGOALS,TARGETS,ANDOPERATIONSThischapterswitchesfromwhateconomistscallthe“real”sideoftheeconomy—transactionsingoodsandservices,productiondecisions,andthelabormarket—tothefinancialside.Wheredoes“money”fitin,whatdoesthecentralbankdo,andhowdothefinancialmarketsinteractwithther

2、ealeconomy?Thesearethequestionswedealwith,andtheyarenoteasy.Economistsarenotclear(noraretheyinagreement)abouttheanswers.Whatmakesthismoredifficultisthattheanalysisisoftennotintuitive.I’lltrymybest.TheFinancialSectorTransactions—purchasinggoods,hiringlabor,andsoon—requirepayment.Inamoder

3、neconomy,thisisdoneviaanacceptedmeansofremuneration,suchascash,checks,wiretransfer,orcreditcards.Thesemeansofpayment,inthecontextofmacroeconomics,arebroadlyreferredtoas“liquidity.”1Theaggregatelevelofeconomicactivity,asreflectedinGDP,determinesthenumberoftransactionstakingplaceintheecon

4、omy.Hence,thelevelofGDPdeterminestheeconomy’sliquidityneeds.Cashistheultimateformofliquidityinamoderneconomy.Checkpaymentsareultimatelyclearedbetweenbanksbythebankinginstitutionssendingcash—referredtoas“reserves”whenheldatbanks—toeachother.Creditcardtransactions,whichactuallyrepresent6

5、970•MacroeconomicsforMarketProfessionalsborrowingratherthanpayment,ultimatelyneedtobepaidfor(typicallybycheck).Andwiretransfersboildowntointerbanktransfersofreserves.Inshort,banksneedreserves,orcash,fortheirday-to-daytransactionalbusiness.TheU.S.FederalReservemandatesthataminimumamount

6、ofreservesbeheldbycommercialbanks,knownas“reserverequirements.”Butitshouldbeclearthatbankswouldholdsomereservesevenwithoutacentralbank’simposedminimum.Thustheeconomy’sneedforliquiditycomprisesthenonbankpublic’scashrequirements,plusrequiredandexcessreservesofthebankingsystem.Thecentralb

7、ankisthecreator,orsupplier,ofliquidity.Thenexusofthebank’screationofandtheeconomy’sneedforliquiditydeterminesthe(short-run)levelofinterestrates.Thenextsectionsdescribehow.TheCentralBank’sGoalsandOperationsBeforewegetintothedynamicsofhowacentralbank’sactivitiesaffectinterestrates,itis