11-02-10-Policy Regimes And Policy Initiatives

11-02-10-Policy Regimes And Policy Initiatives - 10 Of...

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Policy Regimes And Policy  Initiatives February 10, 2011
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A Policy Regime A Policy Regime Describes How Policy  Makers React To Developments In The Open  Market For Example, The Managed Floating  Exchange Regime Which The Bank Of  Canada Seems To Following Is To Keep The  Value of The Canadian Dollar From Rising  Too High. When There Is Upward Pressure On The  Canadian Dollar The Bank Eases Its Policy  Instruments So As To Prevent It From Going 
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Policy Regime In Closed  Economy m s   = m s T  +d∙(r – r T ) This Policy Regime Has Been Called  “Leaning Against The Wind.”  That Is, As  Interest Rates Rise, The Size Of The  Money Supply Outstanding Is Increased.   In The Process, Interest Rates Rise Less  Than They Would Have Otherwise.
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Polar Cases When d = 0, The Bank Of Canada Keeps  The Money Supply, m s , At Its Target Level,  m s T .  (This Is The Assumption In Chapter 
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Unformatted text preview: 10 Of Williamson.) At The Opposite Extreme, The Bank Of Canada Keeping The Interest Rate, r, At Its Target Level, r T , Is Represented By This Equation When d = . (This Is The Assumption In Chapter 12 Of Williamson.) General Case When 0<d<, The Bank Of Canada Is Tending To Stabilize Both The Interest Rate And The Money Supply. This Is Called Leaning Against The Wind, And Probably Is More Realistic Than Either Of The Polar Cases. Particularly Interesting Is When d = 1. In This Case, The Percentage Deviation In The (Level Of The) Money Supply From Its Target Level Is Just Equal To The Percentage Point Per Year Deviation Of The Interest Rate From Its Target Level. Slope Of LM Policy Initiatives: Shifts In LM...
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11-02-10-Policy Regimes And Policy Initiatives - 10 Of...

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