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slides16 - Mishkin ch.16: Monetary Policy Strategy General...

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[Notes on Ch.16] Mishkin ch.16: Monetary Policy Strategy General Goals : - Price Stability. - Growing GDP. Avoiding recessions. - Financial stability? An Operating Target : directly controllable 1. A monetary aggregate: MB, MB n , R, NBR 2. An interest rate: Fed-Funds rate. A Strategy: linking operations to goals. - Intermediate Targets: Money (M1 or M2) or interest rates (T-bill)? [Traditional approach: Hierarchy of goals, targets, and indicators.] - Inflation Targeting = Bernanke’s approach.
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[Notes on Ch.16] Practical Perspective on Operations: How should the Open Market Desk respond to disturbances? • Scenario: Reserve demand is strong. Banks bid up the Fed-Funds rate. No apparent causes for the strong reserve demand. • Option #1: Do nothing = Unchanged R n : R d => i FF => i - Main Impact: Significant increase in interest rates - Small effects on money supply M1, but limited [If i => ER/D down => m => M1 - but not much] i FF i M R Rd Md
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[Notes on Ch.16] • Option #2: Do open market operations to stabilize i FF : - Scenario: R d => NBR to keep i ff constant.
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This note was uploaded on 12/26/2011 for the course ECON 135 taught by Professor Bohn,h during the Fall '08 term at UCSB.

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slides16 - Mishkin ch.16: Monetary Policy Strategy General...

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