Chapter 17 - The central bank balance sheet and the money supply process. In this chapter, we need to understand how the central bank interacts with the financial system. What is it that central banks buy and sell? What are the assets and liabilities on their balance sheets? How do they control those assets and liabilities, and why might they want to hide them from the public?. | Chapter Seventeen 17- Introduction During the September 11, 2001 crisis, the financial community was on the edge of a systemwide collapse. Because of the immediate action of the Fed officials, the financial system held together, and most of us never realized how close we came to catastrophe. This was one of the greatest successes of modern central banking. 17- Introduction The financial system, one of the terrorists’ primary targets, returned to near normal within weeks. Many of the Fed’s actions in the crisis of 2007-2009 were unprecedented or had not been seen since the 1930s. For the first time since the Great Depression, the Fed lent to nonbanks and even to nonfinancial companies. 17- Introduction During the Great Depression, Fed officials didn’t fully understand how their actions affected the supply of credit in the economy. The financial system collapsed because Fed officials had failed to provide the liquidity that sound banks needed to stay in business. | Chapter Seventeen 17- Introduction During the September 11, 2001 crisis, the financial community was on the edge of a systemwide collapse. Because of the immediate action of the Fed officials, the financial system held together, and most of us never realized how close we came to catastrophe. This was one of the greatest successes of modern central banking. 17- Introduction The financial system, one of the terrorists’ primary targets, returned to near normal within weeks. Many of the Fed’s actions in the crisis of 2007-2009 were unprecedented or had not been seen since the 1930s. For the first time since the Great Depression, the Fed lent to nonbanks and even to nonfinancial companies. 17- Introduction During the Great Depression, Fed officials didn’t fully understand how their actions affected the supply of credit in the economy. The financial system collapsed because Fed officials had failed to provide the liquidity that sound banks needed to stay in business. 17- Introduction We need to understand how the central bank interacts with the financial system. What is it that central banks buy and sell? What are the assets and liabilities on their balance sheets? How do they control those assets and liabilities, and why might they want to hide them from the public? How is the central bank’s balance sheet connected to the money and credit that flow through the economy? Where do the trillions of dollars in our bank accounts actually come from? 17- The Central Bank’s Balance Sheet There are numerous financial transactions leading to changes in the central bank’s balance sheet. The structure of the balance sheet gives us a window through which we can study how the institution operates. Central banks publish their balance sheets regularly. Publication is a critical part of the transparency that makes monetary policy effective. 17- The Central Bank’s Balance Sheet 17- The Central Bank’s Balance Sheet We will focus on a .
