Lecture 9 Slides - L ECTURE 9 The Effects of Quantitative...

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Unformatted text preview: L ECTURE 9 The Effects of Quantitative Easing October 26, 2011 Economics 210c/236a Christina Romer Fall 2011 David Romer Channels of Monetary Policy Transmission Expectations of future output growth and inflation. Nominal interest rates not yet at zero. The real exchange rate (and expectations about the real exchange rate). Asset prices and the extent of credit-market imperfections. Tools of Monetary Policy at the Zero Lower Bound Communication about future path of safe short-term interest rate (or of supply of high-powered money). Communication about objectives, or the formal adoption of new objectives. Communication about the channels of monetary policy (such as the exchange rate or future output). Purchases of assets other than short-term government debt. What do we mean by quantitative easing? Originally used to mean continued conventional open market operations (buying short-term government debt to increase reserves) at the zero nominal bound. Now used to mean unconventional OMO at the ZLB, such as buying long-term government bonds, MBS, or other assets. I . C HRISTINA R OMER , W HAT E NDED THE G REAT D EPRESSION ?-500 500 1000 1500 2000 2500 3000 3500 4000 4500 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 Millions of Dollars Gold Inflows to the U.S. Can think of Roosevelt as doing QE Bought gold and put currency and reserves into circulation. Replenished the governments account using gold certificates. Did Roosevelts QE increase expected inflation and lower real interest rates? Mishkin Method of Estimating Ex Ante Real Rate Ex Post Real Rate : r ep t = i t t where i is the nominal rate and is actual inflation....
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This note was uploaded on 02/28/2012 for the course ECON 210c taught by Professor Romer,c during the Fall '08 term at University of California, Berkeley.

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Lecture 9 Slides - L ECTURE 9 The Effects of Quantitative...

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