Central Banks and Monetary Policy

This is Module 4 of the Money and Banking course.

Readings

Self-Directed Learning

The readings above are an introduction to central banks and how they set monetary policy. To continue your own learning about this topic, search the internet for articles, other resources, and examples related to central banks and monetary policy. See what you can learn from what others are saying about current actions of the Fed and other central banks.

Discussion of Module Topic

Write down your thoughts and experiences while you’re learning. Here are some prompts to get you started for writing about the module topic:

What is a central bank and what makes it “central”?
Have we always had central banks?
Describe and explain the structure of the Federal Reserve system.
Identify some of the other central banks around the world.
What is monetary policy?
What is the “dual mandate”?
What is the role of inflation and employment as determinants of monetary policy?
Compare the views of a hawk vs. dove.
How does the Federal Reserve set monetary policy?
What is the federal funds rate?
What are open market operations and how does this relate to bank reserves?
Why does the Fed raise and lower the federal funds rate?
What is conventional monetary policy vs. unconventional monetary policy?
What is quantitative easing (QE)?
How much do market participants think the Fed will raise interest rates in 2022?

Discussion of Module Exercises

For this module, the discussion of the module exercises should include writing about your experience of practicing with analyzing monetary policy. As you’re working on the module exercises below, here are some prompts to get you started for writing about it:

What are some sources of data related to monetary policy?
What data do we have on what the Fed expects to do in 2022?
What do market participants expect the Fed to do in 2022?
How can FRED be used to download historical data related to monetary policy?
How can you use Excel to work with this data?
What basic statistics can you use to analyze the data?
How do the statistics help you summarize the data?
What charts can you create to visualize the data?
Which types of charts seem to be most useful for visualizing your data?
How can statistics and charts be used to help us analyze monetary policy?

Module Exercises

For these exercises, we will be working together in Excel using Microsoft Teams. The goal is to start working with some data on monetary policy and then to use that data to calculate statistics and create data visualizations.

Each student can contribute in different ways to the shared Excel files on the M4 Teams channel. Not every student needs to contribute data. However, every student should be attempting to calculate some statistics and create some form of visualization. This can be done using data that other students have contributed! The main goal is to use statistics and data visualization to analyze monetary policy.

A. Try to find some data related to monetary policy. This could be the federal funds rate, expectations of the funds rate, reserves, monetary base, etc. It could be the most recent numbers (e.g., the federal funds rate is currently…) or the historical data (e.g., the federal funds rate has not changed since…) There are a range of different data sources related to the economy. You could use the FOMC calendar or a data warehouse like FRED. The goal is to start analyzing monetary policy data to support our discussions during this module. You can add a data worksheet to “Excel Exercises” or create a new Excel workbook. Make sure to document your data in a ReadMe and tell other students about it in Posts.

B. Work with some raw data in a different worksheet. You can copy some raw data (yours or someone else’s) into another worksheet and try to organize the data in a more useful way. You could sort the data on a different field or filter the data to show fewer observations. You could also hide columns if you like. Practice using a calculation to construct a new field (variable) based on the raw data (e.g. a ratio or sum of two fields). Make sure to document your new worksheet in a ReadMe and tell other students about it in Posts.

C. Use Posts or Notes in Teams to share about interesting current numbers related to monetary policy. Looking at the FOMC calendar, it can be interesting to talk about recent changes in monetary policy.

D. Using data from A or B, calculate some basic statistics referenced in Module 2. Feel free to explore other statistics as well. Share what you find in Posts. For instance, you could think about how statistics provide context for current monetary numbers, such as “The federal funds rate is X percentage points below the recent high…” You could also post about these statistics in Posts to help provide context for discussions about the current outlook for monetary policy.

E. Using data from A or B, generate one or more charts for visualization of the data. The chart(s) should communicate some insight about the data. You could post a screenshot of your chart in Posts and say something about why you think it is interesting.