This preview shows page 1. Sign up to view the full content.
Unformatted text preview: cumstances. This way monetary policy will become time consistent. Having a nominal anchor is one way of committing to a rule, which will eliminate or at least reduce the time inconsistency problem.
7 Other Goals of Monetary Policy
► High employment: Unemployment causes human misery. It means idle resources i.e. inefficient allocation of resources. Natural rate of unemployment (NAIRU): the level of unemployment consistent with full employment. (UE≠0) (Frictional +structural unemployment) ► High economic growth ► Stability of financial markets
► Interest rate stability ► Stability of foreign exchange markets
8 Should Price Stability be Primary Goal of Monetary Policy?
Mandate: manda, emir, buyruk
► Hierarchical mandates: Mandates that put price stability goal first, and as long as it is achieved other goals can be pursued. Examples: CBRT, European Central Bank, Bank of Canada, Reserve bank of New Zealand, Bank of England. ► Dual mandates: Mandates that promote two coequal objectives: price stability and maximum employment. Ex. F...
View Full Document