FOMC Committee
7 BoG
5 Presidents of regional FRBs
NY Fed always
Selling Treasury Securities
Public gets the bonds
Fed gets the money
Removes money from circulation
Increase in supply of bonds lowers their price
Therefore increases their yield
Selling Treasury Securities
This is why OMO sales, which tighten the money supply, raise interest rates
r increases as M decreases
Buying Treasury Securities
Public gets the money
Fed gets the bonds
Puts money into circulation
Increase in demand for bonds raises their price
Therefore lowers their yield
Buying Treasury Securities
OMO purchase, which increase the money supply, lower interest rates
r decreases as M increases
Deposit Expansion
If the reserve requirement is 10%,
The DEM is ….
10 (=1/.10)
OMO worth $1 billion can change M by up to ….
$10 billion
Repurchase Agreements
SR, temporary, adjustments to M
Fed buys or sells RPs which expire in 1 to 15 days
Fed buys a 15 day RP for $1 billion from a security dealer
Increases M by $1 billion (excluding DEM money) for 15 days
Repurchase Agreements
After 15 days, the security dealer buys back the bonds, wiping out the $1 billion …
and any additional money created through deposit expansion.