Abstract

Monetary policy changes that are unexpected by the investing public can generate great volatility and illiquidity in the equities market, and therefore may severely compromise the Federal Reserve’s ability to control the economy. Given the investing public’s power, their fear of uncertainty, and their impulsive nature to create and act upon uninformed expectations, it is imperative that the Federal Reserve uses any and all communication about monetary policy with the purpose of further advancing the their stability objectives. Initially, the Federal Reserve felt that changes in monetary policy were most effective if decided and implemented in private however over 50 years after its establishment, Ben Bernanke began to realize the power of transparency and communication. Given how recently its power was recognized and utilized, it is still a relatively new topic with various facets that have yet to be explored. This paper will carefully analyze these different facets of transparency. First it will explain why a lack of communication was originally considered to be the most effective way to implement monetary policy. Next, it will explore the relationship between the investing public’s power and their need for communication. And lastly, it will attempt estimate the best way to use communication to the Federal Reserve’s benefit, with special attention to the recent financial crisis of 2008 and how Ben Bernanke handled it. These results will reiterate the value of transparency between the Federal Reserve and the investing public about target federal funds rates and expected inflation, which will ultimately allow them to work together to achieve the same objectives.

Notes

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Thesis Completion

2014

Semester

Spring

Advisor

Ramanlal, Pradipkumar

Degree

Bachelor of Science in Business Administration (B.S.B.A.)

College

College of Business Administration

Department

Finance

Subjects

Business Administration -- Dissertations, Academic; Dissertations, Academic -- Business Administration

Format

PDF

Identifier

CFH0004637

Language

English

Access Status

Open Access

Length of Campus-only Access

None

Document Type

Honors in the Major Thesis

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Included in

Finance Commons

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