Chapter16-2011

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ormation to determine the best settings for the monetary policy. Demonstrated success in US. ► Disadvantages of Implicit Nominal Anchor: Lack of transparency: It creates uncertainty and unnecessary volatility in the financial markets. Lack of accountability: No predetermined criteria for judging the success of the FED. Success of the policy is highly dependent on the preferences, skills and trustworthiness of individuals in charge of the central bank. 19 Choosing the Policy Instrument ► Policy Instrument (Operating Instrument): is a variable that respond to CB’s tool and indicates the stance of the monetary policy (easy­tight). Reserve aggregates: total reserves, non­borrowed reserves, monetary base etc. Interest rates: short term interest rates. ► Intermediate Target: these stand in between the policy instrument and the monetary policy goals and are not directly affected by the tools of monetary policy but more closely linked with the goals. M2, M3 Long­term interest rates 20 Policy Instrument Intermediate Target Monetary Policy Goals For Example: O/N Rate Long term interest rate Price Stability 21 Targeting Non...
View Full Document

This document was uploaded on 03/11/2014 for the course ECON 353 at Middle East Technical University.

Ask a homework question - tutors are online