We think you have liked this presentation. If you wish to download it, please recommend it to your friends in any social system. Share buttons are a little bit lower. Thank you!
Presentation is loading. Please wait.
supports HTML5 video
Modified over 5 years ago
Conduct of Monetary Policy: Goals and TargetsChapter 18 Conduct of Monetary Policy: Goals and Targets
Goals of Monetary Policy1. High Employment 2. Economic Growth 3. Price Stability 4. Interest Rate Stability 5. Financial Market Stability 6. Foreign Exchange Market Stability Goals often in conflict © 2004 Pearson Addison-Wesley. All rights reserved
Central Bank Strategy © 2004 Pearson Addison-Wesley. All rights reserved
Money Supply Target 1. M d fluctuates between M d' and M d''2. With M-target at M*, i fluctuates between i' and i'' © 2004 Pearson Addison-Wesley. All rights reserved
Interest Rate Target 1. M d fluctuates between M d' and M d''2. To set i-target at i* Ms fluctuates between M' and M'' © 2004 Pearson Addison-Wesley. All rights reserved
The incompatibility of i and M targetsInterest-rate and monetary aggregate targets are incompatible. A central bank can hit one or the other but not both. © 2004 Pearson Addison-Wesley. All rights reserved
Criteria for Choosing TargetsCriteria for Intermediate Targets Measurability Quick and accurate Monetary aggregates with two-week delay, interest-rate available immediately, and GDP less accurate and long-time delay. Is i target better? Not necessary. We care ir, but it is hard to measure because of expected π. Controllability Is i target better? Not necessary. Predictably Effect on Goals Interest rates aren’t clearly better than Ms on criteria 1 and 2 because hard to measure and control real interest rates © 2004 Pearson Addison-Wesley. All rights reserved
Criteria for Choosing TargetsCriteria for Operating Targets Same criteria as above Reserve aggregates and interest rates about equal on criteria 1 and 2. For 3, if intermediate target is Ms, then reserve aggregate is better; if the desired intermediate target is an interest rate, the preferred operating target will be federal funds rate. © 2004 Pearson Addison-Wesley. All rights reserved
Taylor Rule, NAIRU and the Phillips CurveFed funds rate target = inflation rate + equilibrium real fed funds rate + 1/2 (inflation gap) + 1/2 (output gap) Taylor has assumed that equilibrium real fed funds rates (consistent with full employment in the long run) is 2% and that an appropriate target for inflation would be also 2%, with equal weights of ½ on the inflation and output gaps. Example: π=3% , and GDP was 1% above its potential. Then Taylor rule suggests that Fed funds rate should be set at 6%. © 2004 Pearson Addison-Wesley. All rights reserved
Taylor Rule, NAIRU and the Phillips CurvePhillips Curve Theory Change in inflation influenced by output relative to potential, and other factors When unemployment rate < NAIRU, inflation rises NAIRU thought to be 6%, but inflation falls with unemployment rate below 5% Phillips curve theory highly controversial Potential GDP is a function of the natural rate of unemployment, which is consistent with full employment Nonaccelerating inflation rate of unemployment (NAIRU): the rate of unemployment at which there is no tendency for inflation to change. © 2004 Pearson Addison-Wesley. All rights reserved
Taylor Rule and Fed Funds Rate© 2004 Pearson Addison-Wesley. All rights reserved
© 2010 Pearson Addison-Wesley. Monetary Policy Objectives and Framework A nations monetary policy objectives and the framework for setting and achieving.
Central Bank Policy What should the Fed do?.
Objectives At this point, we know
Chapter 16 The Conduct of Monetary Policy: Strategy and Tactics.
The Monetary Policy and Aggregate Demand Curves
The Conduct of Monetary Policy: Strategy and Tactics
Notes and teaching tips: 8, 23, 25, 29, 30, 51, 54, 55, and 57.
Federal Reserve Tools and Targets. Open Market Operations Types: –Dynamic Designed to change base –Defensive Meant to offset other factors affecting base.
Chapter 18. Monetary Policy The market for reserves Open market operations Discount lending Reserve requirements Goals of monetary policy Using targets.
Monetary Policy: Goals & Targets Chapter 18. Goals of Monetary Policy Goals 1.High Employment 2.Economic Growth 3.Price Stability 4.Interest Rate Stability.
Federal Reserve and Monetary Policy. Formal Structure of the Fed THE FEDERAL RESERVE (FED)
Chapter 18. Conduct of Monetary Policy Goals of monetary policy Using targets A History of monetary policy Policy Rules Goals of monetary policy Using.
C h a p t e r fourteen © 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed. Prepared by: Fernando & Yvonn.
Maclachlan, Money & Banking Fall The Money Supply Process and Monetary Policy Tools Week 9.
Monetary Policy Goals, Strategy, Tactics Week 10 (Chap 16)
Inflation is the rise in the level of prices of goods and services in an economy over a certain period of time. The general.
Chapter 16 What Should Central Banks Do? Monetary Policy Goals, Strategy, and Tactics.
Copyright © 2002 Pearson Education, Inc. Goals of Monetary Policy Price stability High employment Economic growth Financial market and institution stability.
Chapter 14 New Keynesian Economics: Sticky Prices Copyright © 2014 Pearson Education, Inc.
© 2021 SlidePlayer.com Inc. All rights reserved.