MONETPOLFEDCLASS - 1 Monetary Policy and the Fed The Fed...

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Unformatted text preview: 1 Monetary Policy and the Fed The Fed Structure, independence, goals, tools, reserves and money creation Balance Sheet Conspiracy and other Views 1 Monetary Policy Fed-> Reserves/Ms->r- >I,C,NX,D->y,p Also $, Tobins q, asst prices Cant push on a string - Liquidity Trap Crisis Policies Quantitative easing In the News? 2 Course Issues Online Midterm Tuesday 3/8 6pm Thurs 3/10 6pm Extra Credit Stop in some time (resume) Midterm Review Questions (Resources) 3 ODE Slides per page (blogs) 2 FOMC Statement 1/26/2011 economic recovery is continuing, though (to slow) household spending picked up..constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, investment in nonresidential structures is still weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent 4 Role of Fiscal Policy 2002 Walsh Recession 2001 Use is unusual why? Automatic Stabilizers - tax, spending State & local pro cyclical Lags (avg recession 11 mos) 5 implementation - long impact Fiscal Policy 2009 Leduc Monetary Policy First Why? But zero lower bound/liquidity trap/cant push on a string 6 Theory Multipliers G>T Depend on expectations, impact on I, NX, other injections/leakages 3 SR Monetary Policy S & D for Bank Reserves determines Fed Funds Rate (ff rate) D by Banks, S by Fed Fed sets target ff rate open market ops buy/sell securities changes S of Bank Reserves changes ff rate Also changes money supply 7 Also changes money supply Older approach focus on MS&Md->r Keynesian: transactions, speculative demand for money liquidity preference theory Same punch line Fed controls SR int rate Other rates move with funds rate Real variables move with int rates Monetary Transmission Mechanism Fed Open Market Operations-> Change in Bank Reserves->ff rate, other short-term interest rates, Ms, etc -> Aggregate Demand Ms r I,Cd D y, P Other channels...
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MONETPOLFEDCLASS - 1 Monetary Policy and the Fed The Fed...

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