Lecture 9 Slides post after - Economics 134 Spring 2012...

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L ECTURE 9 Effects of Postwar Monetary Policy February 14, 2012 Economics 134 Christina Romer Spring 2012 David Romer
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I. R OMER AND R OMER S E VIDENCE ON THE E FFECTS OF M ONETARY P OLICY
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The Type of Episode Romer & Romer Focus On “[W]e focus on times when the Federal Reserve attempted not to offset perceived or prospective increases in aggregate demand but to actively shift the aggregate demand curve back in response to what it perceived to be ‘excessive’ inflation. Or, to put it another way, we look for times when concern about the current level of inflation led the Federal Reserve to attempt to induce a recession (or at least a ‘growth recession’).”
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Y π Y r Fed Decision to Tighten Policy to Reduce π : Short-Run Effects r 0 Y 0 (= Y) MP 0 IS IA AD 0 _ π 0 , π 1 Y 0 (= Y) _ r 1 Y 1 AD 1 Y 1 IA 0 , IA 1 MP 1
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Y π Y r Fed Decision to Tighten Policy to Reduce π : Long-Run Effects r 0 , r LR Y 0 (=Y, Y LR ) MP 0 , MP LR IS IA AD 0 _ π 0 , π 1 _ r 1 Y 1 AD 1 Y 1 IA LR MP 0 π LR Y 0 (=Y, Y LR ) IA 0 , IA 1
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Y π Y r What Would Have Happened without the Change in the Rule r 0 Y 0 (= Y) MP IS IA AD _ π 0 Y 0 (= Y) _
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Less subjective Easier Why Did We Focus on This Type of Episode, Rather than All “Unusual” Monetary Developments?
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Narrative Evidence of a Policy Shift in 1947 “It was [the] opinion [of the chief Federal Reserve economist present] that throughout the war and postwar period there had been too many fears of postwar deflation, … and that, although any downturn should be taken care of at the proper time, the
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This note was uploaded on 02/28/2012 for the course ECON 134 taught by Professor Davidromer during the Spring '12 term at University of California, Berkeley.

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Lecture 9 Slides post after - Economics 134 Spring 2012...

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