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chapter16notes - h Credibility of monetary policy o How...

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Chapter 16: h Reducing high inflation o Shift AD to the left by decreasing inflation target rate h Disinflation o Big decrease in inflation o May create a sig recessionary gap h Keeping inflation low o Adjusting target real interest rate to the real interest rate where saving = investment in long run h Accommodating policy – policy that lets effects of a shock happen h Anchored inflationary expectations o When peoples expectations of future inflation rate doesn’t change when inflation rises a little h Macroeconomic volatility- o Reduced has many benefits Improves market functions Makes econ and business planning easier Reduces the resources to manage inflation risks h Core rate of inflation o Rate of increase of all prices expect energy and food
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Unformatted text preview: h Credibility of monetary policy o How much people believe the banks promise to keep inflation low h Central bank independence o More independent if bankers are appointed for long terms o More independent if less gov intereference or review o More independent if less obligated to finance nation deficit o More independent if they can set and control own budget h Inflation hawk o Someone who is committed to keeping inflation low even with short run costs h Inflation dove o Someone who isnt very committed to keep inflation low h Inside lag o Delay b/w when policy change is needed and when it is implemented h Outside lag o Delay b/w change implemented and when effects on economy happen...
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