ECON-002 Lecture Notes - Lecture 19: Command Center, Exigent Circumstance, Quantitative Easing

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5 Jun 2017
April 4th, 2017
QE = Quantitative Easing
Why QE was supposed to reduce R*
Suppose you have a $1000 bond that pays $100 interest per year. Interest rate = 10%
If bond price rises to $1100, $100/$1100 = 9.1%
Were unconventional monetary policies successful?
-The Fed’s view (rosy):
-altogether, these policies were very successful. R* is a little lower. Recovery was much faster
than recovery from Great Depression. (Industrial production graph).
-A different view (less rosy):
- we don’t know what would have happened without unconventional monetary policies. We
don’t know if these policies will have bad side effects
-bailing out financial system did not teach anyone any lessons about the consequences of bad
behavior. The lesson that it learned was that in an emergency, they could rely on the Fed to
help them out.
-nobody knows what will happen as excess reserves eventually come down again (Eg., Taylor
vs. Blinder). Taylor said that if banks lend those reserves, that will put us on a path to
-the Fed has too much power. Fed officials are not elected officials
-“In unusual and exigent circumstances, … [the FOMC may] discount for any individual,
partnership, or corporation, notes, drafts, and bill s of exchange when such… are
endorsed or otherwise secured to the satisfaction of the Federal Reserve bank.”
-translation: legally, the Fed has the authority to do whatever; they can lend to anyone if
collateral is ok
Labor Market Indicators
Topics we will go over:
-the Employment Situation for February 2017
-every month, there is an Employment Situation report
-usually comes out on the first Friday of the month
-Jobless Recoveries
-The Natural Rate of Unemployment
The official unemployment rate [u-3] (4.7% in February 2017)
-if you did not work for pay in the past week and you are not available to work, you are not in the
labor force
-if you did not work for pay in the last week and you have been available to work, and have looked
for work in the last 4 weeks you are unemployed
-if you did not look for work, you are not in the labor force
-if you worked for pay in the last week, you are employed
-So, therefore there are 3 states: unemployment, employment, and not being in the labor force
u = # unemployed
#in labor force
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