ECON1102 Chapter Notes - Chapter 7: Federal Reserve System, Mastercard, Eurozone
Document Summary
Targets - final variables that cbs seek to influence: Monetary policy actions taken by a central bank (cb) to influence short-run macroeconomic. Inflation rate: level of resource utilisation (e. g output gap or cyclical unemployment rate) Cbs do not have direct control over ultimate targets hence they use instruments. Monetary policy instrument: variable which the central bank can directly control, eventually has a predictable effect on policy targets. Most cbs currently use a (very) short-term interest rate as their policy instrument. Agreement between rba and elected govt. (cid:494)flexible(cid:495) = don(cid:495)t only care about level of inflation, but also the level of eco activity and unemployment. Not just a point target, but a range (between 2-3%) Core or underlying inflation: use some procedure to try and remove the volatile, temporary fluctuations in inflation, measure the longer-term (underlying) trends in inflation rate. 2 basic approaches: remove historically volatile components of headline inflations such as energy prices us.
