open market operations

Examples of open market operations in the following topics:

• Open Market Operations

  • Open market operations (OMOs) are the purchase and sale of securities in the open market by a central bank.
  • These include the discount rate, the fed funds target rate, and the reserve requirement, and open market operations (OMOs).
  • In the United States, the Federal Reserve Bank of New York conducts open market operations.
  • The FOMC makes a plan for open market operations over the short term, and publicly announce it after their regularly scheduled meetings.
  • Discuss the use of open market operations to implement monetary policy

• The Federal Open Market Committee and the Role of the Fed

  • The Federal Open Market Committee is responsible for conducting open market operations in order to achieve a target interest rate.
  • These operations are the primary responsibility of the Federal Open Market Committee (FOMC).
  • When conducting monetary policy the Fed sets a target for the federal funds rate, which it attempts to achieve using open market operations.
  • As mentioned previously, the aim of open market operations is to manipulate the short term interest rate and the total money supply.
  • Describe the structure and operations of the Federal Open Market Committee (FOMC)

• The Federal Reserve and the Financial Crisis of 2008

  • The Fed responded to the financial crisis with conventional open market operations and unconventional credit facilities and bailouts.
  • Conventional monetary policy suggests that in an economic downturn, a central bank should conduct open market operations in order to increase the money supply and lower interest rates.
  • Further, this type of financial crisis meant that banks' assets were suddenly worth far less; open market operations can ensure that these banks have the liquidity they need to carry out their financial activities.
  • To deal with the shrinking credit markets, the Fed created a selection of new credit facilities.
  • The Primary Dealer Credit Facility (PDCF) allows the banks that normally handle open market operations on behalf of the Fed to apply for overnight loans.

• The Creation of the Federal Reserve

  • The Fed has three main policy tools: setting reserve requirements, operating the discount window and other credit facilities, and conducting open-market operations.
  • The Fed can affect the interest rate by conducting open-market operations (OMOs) in which it buys or sells bonds.
  • The diagram shows how the central bank can increase the money supply by lending money through the discount window or purchasing bonds (open market operations).

• Executing Restrictive Monetary Policy

  • Central banks can decrease the money supply through open market operations and changes in the reserve requirement.
  • These loans take place in a private financial market called the federal funds market.
  • The Fed does not control this rate directly but does control the interest rate indirectly through open market operations.
  • The major tool the Fed uses to affect the supply of reserves in the banking system is open market operations—that is, the Fed buys and sells government securities on the open market.
  • The Fed's open market purchase decreases the supply of reserves (money) to the banking system, and the federal funds rate (interest rate) increases.

• Executing Expansionary Monetary Policy

  • Central banks can increase the money supply through open market operations and changes in the reserve requirement.
  • The Fed does not control this rate directly but does control the interest rate indirectly through open market operations.
  • The major tool the Fed uses to affect the supply of reserves in the banking system is open market operations—that is, the Fed buys and sells government securities on the open market.
  • These operations are conducted by the Federal Reserve Bank of New York.
  • Thus, the Fed's open market purchase increased the supply of reserves (money) to the banking system, and the federal funds rate (interest rate) falls.

• Setting and Achieving the Interest Rate Target

  • For banks in need of reserve funds, the overnight or short-term bank loan market is available.
  • The rate is indirectly influenced and targeted by the Fed via a direct channel of open market operations and is communicated to the public as a Fed Funds target range as a standard part of the Fed Open Market Committee communications.
  • Using its open market channel, the Fed buys government bonds to increase the money supply and sells the same bonds to reduce it.
  • The fed funds rate will be within the range of the target; if not the Fed will adjust its open market operations (buying and selling of bonds) to achieve the range .

• Structure of the Federal Reserve

  • The idea justification for independence is that it allows the Fed to operate without being put under political pressure to take actions that may not be in the best long-term economic interest of the country.
  • The Federal Open Market Committee (FOMC), composed of the seven members of the Federal Reserve Board and five of the 12 Federal Reserve Bank presidents, which oversees open market operations, the principal tool of U.S. monetary policy.
  • It operates independently, and is not subject to political pressures directly as is Congress or the President.

• Introduction to the Role of the Government in the Economy

  • The country's economic success seems to validate the view that the economy operates best when government leaves businesses and individuals to succeed -- or fail -- on their own merits in open, competitive markets.
  • The answer is, "not completely. " A complex web of government regulations shape many aspects of business operations.

• Natural Resource Market

  • Most natural resources that are used can be acquired through the open market or through private deals.
  • Commodity markets are heavily regulated.
  • The NFA's first regulatory operations began in 1982 and fall under the Commodity Exchange Act of the Commodity Futures Trading Commission Act.
  • In Europe, commodity markets are regulated by the European Securities and Markets Authority (Esma), based in Paris and formed in 2011.
  • Not all natural resources can be acquired on commodity markets.