Discussion Notes

Discussion Notes - Chapter 16 in Mishkin How they go from...

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Chapter 16 in Mishkin How they go from the tools they have to the goals they set for themselves How does a central bank try to meet its goals? o Must employ a strategy: Monetary Targeting Setting a target for the growth rate of a certain money aggregate Ex. 5% annual growth of M1 Why would a country target money growth Popular in the 70s and the 80s o In 1970, Arthur Burns became Fed Chairman and committed Fed to using monetary targets to guide monetary policy o In 1975, announced that Fed would make public their targets for money supply growth o In 1979, Paul Volcker refocused Fed’s target to nonborrowed reserves and money aggregates o From 1979-1982, Fed never achieved its target M1 growth rate Failure of Monetary Targeting in US o Why was the Fed unable to meet its MI growth targets Economic shocks M1 Target was not really Volcker’s goal Decreased rampant inflation Volcker needed to say money growth was goal to increase interest rates enough to bring down inflation
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Discussion Notes - Chapter 16 in Mishkin How they go from...

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