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Michael woodford 39 output output near potential

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Unformatted text preview: . But the problem was not that the Fed failed to conform to the conventional benchmark provided by the “Taylor rule,” as argued by Taylor (2009), but rather that it followed it too faithfully, rather than taking account of the change in financial conditions. Michael Woodford 39 output output near potential through cuts in the federal funds rate alone, owing to the zero lower bound on nominal interest rates. Of course, the fact that reduced aggregate demand resulted in lower economic activity and employment, rather than simply in reductions in wages and prices to the extent needed to maintain full employment, depended on the stickiness of wages and prices, as described in standard standard textbook accounts. Implications for Monetary Policy To To what extent does this extension of the standard model imply changes to the conventional conduct of monetary policy? Taking Taking Account of Financial Conditions The The model’s most obvious implication is that decisions about interest-rate policy should take account of changes in financial conditions—in parti...
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This note was uploaded on 11/23/2013 for the course ECON 11837649 taught by Professor Batchelder during the Spring '10 term at Pepperdine.

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