AS.180.101 Lecture Notes - Lecture 11: Forward Guidance
Document Summary
Short term interest rate has plummeted since 1970s. The myth of normal: bumpy story of inflation and monetary policy. From a monetary policy standpoint, a central bank is a government body at the center of the financial system that possesses powerful policy tools that can be used to loosed on tighten financial conditions. Cause the value of the home currency to trise. Cause lending conditions to become generally and temporarily more stringent. Central banks is supposed to promote 2 goals: low and stable price inflation, healthy pace of economic activity. Healthy pace maintains maximum sustainable employment and stable prices. Looser conditions promote these things but cant restrain them. Now: inflation is still too low, though employment is rising. Policy used to raise the rate and signaling the market that this rate will be persistently higher, leads to all the implications listed above for tighter conditions.
