Chapter 19

Chapter 19 - Chapter 19-The Conduct of Monetary Policy:...

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Chapter 19-The Conduct of Monetary Policy: Strategy and Tactics Monetary Targeting I •United States –Fed began to announce publicly targets for money supply growth in 1975. –Paul Volker (1979) focused more in nonborrowed reserves –Greenspan announced in July 1993 that the Fed would not use any monetary aggregates as a guide for conducting monetary policy Monetary Targeting II •Japan –In 1978 the Bank of Japan began to announce “forecasts” for M2 + CDs –Bank of Japan’s monetary performance was much better than the Fed’s during 1978-1987. –In 1989 the Bank of Japan switched to a tighter monetary policy and was partially blamed for the “lost decade” Monetary Targeting III •Germany –The Bundesbank focused on “central bank money” in the early 1970s. –A monetary targeting regime can restrain inflation in the longer run, even when targets are missed. –The reason of the relative success despite missing targets relies on clearly stated monetary policy objectives and central bank engagement in communication with the public. Monetary Targeting •Flexible, transparent, accountable •Advantages –Almost immediate signals help fix inflation expectations and produce less inflation –Almost immediate accountability •Disadvantages –Must be a strong and reliable relationship between the goal variable and the targeted monetary aggregate Inflation Targeting I •Public announcement of medium-term numerical target for inflation
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This note was uploaded on 02/13/2011 for the course ECON 121 taught by Professor Labadie during the Spring '10 term at GWU.

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Chapter 19 - Chapter 19-The Conduct of Monetary Policy:...

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