Lecture 8b Ec3332 [Compatibility Mode][1]

Lecture 8b Ec3332 [Compatibility Mode][1] - 1....

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20/9/2010 1 Lecture 8b Goals of Monetary Policy Goals of Monetary Policy Goals 1.High Employment 2.Economic Growth 3.Price Stability 4.Interest Rate Stability 5.Financial Market Stability 6.Foreign Exchange Market Stability Goals often in conflict
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20/9/2010 2 Central Bank Strategy Money Supply Target 1. M d fluctuates between M d' and M d'' 2. With M -target at M *, i fluctuates between i' and i''
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20/9/2010 3 Interest Rate Target 1. M d fluctuates between M d ' and d '' M 2. To set i -target at i * M s fluctuates between M' and M'' Criteria for Choosing Targets Criteria for Intermediate Targets
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Unformatted text preview: 1. Measurability 2. Controllability 3. Ability to Predictably Affect Goals Interest rates aren’t clearly better than M s on criteria 1 and 2 because hard to measure and contro rea interest rates control real interest rates 20/9/2010 4 Criteria for Choosing Targets Criteria for Operating Targets Same criteria as above Reserve aggregates and interest rates about equal on criteria 1 and 2. For 3, if intermediate target is M s , then reserve aggregate is bette aggregate is better...
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Lecture 8b Ec3332 [Compatibility Mode][1] - 1....

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