Presentation on theme: "Macroeconomic Themes:31 Contribution of Monetarism in Macroeconomic Policy Supply of money is the determinant of the national income In the long run, the."— Presentation transcript:
Macroeconomic Themes:31 Contribution of Monetarism in Macroeconomic Policy Supply of money is the determinant of the national income In the long run, the influence of money is primarily on the price level and other nominal magnitudes. Real output and employment are not determined by monetary factors. In the short run the supply of money does affect the output. Money is the dominant factor in causing cyclical fluctuations in output and employment in the short run. Private sector is inherently stable and instability is primarily the result of the government policy.
Macroeconomic Themes:32 Policy conclusions Stability in the growth rate of money supply is crucial for a stable economy. Monetarists favour a constant money growth rate policy rule rather than discretion. Fiscal policy does not have any systematic impact on real or nominal income.
Macroeconomic Themes:33 The basic mechanism of money supply
Macroeconomic Themes:34 The basic mechanism of money supply
Macroeconomic Themes:35 Money Supply
Macroeconomic Themes:36 Money Demand
Macroeconomic Themes:37 Friedman (1968) on Monetary Policy
Macroeconomic Themes:38 Natural Rate Hypothesis
Macroeconomic Themes:39 A brief story of monetary policy in the UK and the EU
Macroeconomic Themes:312 How does the Bank of England forecast the inflation?
Macroeconomic Themes:313 Transmission Mechanisms of Monetary Policy-Bank of Englands View
Macroeconomic Themes:314 B&W Figure 9.7 Percentage increase in prices on a year earlier Source: Inflation Report, Bank of England, November 2000 Bank of Englands Fan Chart
Macroeconomic Themes:315 Effects of Changes in the Rate of Interest
Macroeconomic Themes:316 Simple Policy Reaction Function: An Example of Interest Determination Rule
Macroeconomic Themes:317 Simple Policy Reaction Function: An Example of Interest Determination Rule
Macroeconomic Themes:318 B amplified cycle A smoother cycle Does Policy Work? Lags and demand management policy Time Output Business cycle
Macroeconomic Themes:319 Monetarists View on Impact of Monetary and Fiscal Policies