ECON 102 Lecture Notes - Lecture 19: Bank Reserves, Nominal Rigidity, Neutrality Of Money
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ECON 102 Full Course Notes
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Practical policy implementation: the long run neutrality of money, money targeting, targeting policies, output/unemployment targeting, inflation rate targeting, taylor rule. In practice, the equations for md, i(r), ad and as are not exactly known: the theory makes it sound like you can be very precise and big and bold: expand m by exactly. . 34 billion! : in fact, the fed makes marginal changes, and typically they are slow, steering a ship vs steering a bike, further, when the fomc issues policy changes, they don"t take the form above ( m up. No inflation: suppose the long run rate of growth glr = q/q = 3%, and so we set m/m = 3%. The monetarist rule: to facilitate long run growth and fight inflation, the variable we should target is money. Money targeting: the variable the central bank should keep tight control of is the supply of money itself. Monetarists believe that central banks should not engage in countercyclical policy.
