ECO3011024 - holdings Fed choose money supply growth...

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ECO301 10/24/11 Fed Monetary Policy Tools: R_cd I_dr OMO Fed Goals: Sustainable Growth, Price Stability, Financial Market Stability Tool – base- supply –environment If the I_ff is chosen by the Fed, the OMO must change to keep the I_ff at the target level Fed funds and monetary targets incompatible Fed Funds target rate, Ms growth rate determined by growth of Dres and currencly
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Unformatted text preview: holdings Fed choose money supply growth target, Fed Funds rate will be determined by growth of Dres and currency holdings IFF= Inflation + realq uilibrium fed funds rate (I- pi)+ 1/2 (Inflation-inflation target) +1/2 (output growth-output target_ Taylor Rule mechanics Assume: inflation 2%, y = 3% I_ff Target= 2+2+.5(2-2)+.5(3-3)=4%, real rate = 2% 3+...
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