monpolicyrules

monpolicyrules - Monetary Policy Rules Monetary Graduate...

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Monetary Policy Rules Monetary Policy Rules Graduate Macroeconomics I ECON 309 S. Cunningham
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2 Role of the fed funds rate term Role of the fed funds rate term Taylor argued that the behavior of the federal funds rate incorporated in his rule is a reasonable approximation to the actual process of adjustment of the funds rate targets the FOMC used between 1987 and 1993—a period in which monetary policy was very successful.
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3 Taylor Rule: Example Taylor Rule: Example funds rate(t) = GDP price inflation(t) + 2.0 + 0.5 × (GDP price inflation(t) - 2.0) + 0.5 × (output gap(t))
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4 Inflation Targeting Inflation Targeting Another approach to monetary policy, known as inflation targeting, has been instituted by the central banks in several foreign countries. Its application varies from country to country, started with the Reserve Bank of New Zealand, and has been adopted by the Bank of Canada, the Bank of England, the Bank of Finland, the Swedish Riksbank, and the Reserve Bank of Australia. These central banks announce in advance their policy objective for an inflation rate. In none of these cases has the central bank specified the decision rule that it will use to achieve the stated objective.
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5 Monetary Policy Rules Monetary Policy Rules A rule can be defined as “nothing more than a systematic decision process that uses information in a consistent and predictable way.” Poole’s purpose is to examine what we mean by a monetary policy rule followed by a central bank, and to examine what we know about the construction, or design, of the rule.
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Types of Rules Types of Rules Rules that govern our interaction with the environment. Rules that govern our interaction with others. A third type of rule involves the formulation of policy decisions. Here, a systematic decision-making process is complicated because individuals and market participants observe or infer the actions of the policymakers and adjust their behavior in ways that work to their benefit, given their understanding of the policy regime. This is the type of problem faced by monetary policy decision-makers. Monetary policy is more like poker than like solitaire.
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This note was uploaded on 02/25/2012 for the course CHEM 309 taught by Professor Staff during the Spring '11 term at UConn.

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monpolicyrules - Monetary Policy Rules Monetary Graduate...

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