Reference no: EM131810729

Explain the following statements – in each case, at most four sentences should be sufficient

a) Modern central banks, target the cost of exchange settlement reserves to commercial banks and not the quantity of reserves. To control the cost of reserves to banks, central banks, must ensure they supply the quantity of reserves to the banking system that the banks wish to hold.

b) Most modern central banks use the corridor system for interest rates.

c) Some central banks, like the Federal Reserve, have used quantitative easing at times since the Global Financial Crisis, and the European Central Bank or the Bank of Japan are still doing so. This involves changing the policy interest rate from the middle of the corridor to the floor.

d) The corridor system and quantitative easing make it easy for central banks to introduce negative policy interest rates, if that is what policy makers wish to do.