Summary
Summary Economics 244 summaries
- Course
- Economics 244
- Institution
- Stellenbosch University (SUN)
chapter 17 of economics 244 neatly and well summarised
[Show more]
Content preview
Chapter 17The conduct of Monetary Policy: Strategy and Tactics
The Price Stability Goal and the Nominal Anchor
• Over the past few decades, policy makers throughout the world have become
increasingly aware of the social and economic costs of inflation and more
concerned with maintaining a stable price level as a goal of economic policy.
• The role of a nominal anchor: a nominal variable, such as the inflation rate or
the money supply, which ties down the price level to achieve price stability
• The time-inconsistency problem
Other Goals of Monetary Policy
• Five other goals are continually mentioned by central bank officials when they
discuss the objectives of monetary policy:
1. High employment and output stability
2. Economic growth
3. Stability of financial markets
4. Interest-rate stability
5. Stability in foreign exchange markets
Should Price Stability Be the Primary Goal of Monetary Policy?
• Hierarchical versus Dual Mandates:
– Hierarchical mandates put the goal of price stability first, and then say
that as long as it is achieved other goals can be pursued
– Dual mandates are aimed to achieve two coequal objectives: price
stability and maximum employment (output stability)
• Price Stability as the Primary, Long-Run Goal of Monetary Policy
– Either type of mandate is acceptable as long as it
operates to make price stability the primary goal in the long run but not
the short run.
Inflation Targeting
• Public announcement of medium-term numerical target for inflation
• Institutional commitment to price stability as the primary, long-run goal of
monetary policy and a commitment to achieve the inflation goal
, • Information-inclusive approach in which many variables are used in making
decisions
• Increased transparency of the strategy
• Increased accountability of the central bank
• New Zealand (effective in 1990)
• Inflation was brought down and remained within the target most of the
time.
• Growth has generally been high, and unemployment has come down
significantly.
• Canada (1991)
• Inflation decreased since 1991; some costs in term of unemployment
• United Kingdom (1992)
• Inflation has been close to its target.
• Growth has been strong, and unemployment has been decreasing.
• Advantages:
• Does not rely on one variable to achieve target
• Easily understood
• Reduces potential of falling in time-inconsistency trap
• Stresses transparency and accountability
• Disadvantages:
• Delayed signaling
• Too much rigidity
• Potential for increased output fluctuations
• Low economic growth during disinflation
Figure 1 Inflation Rates and Inflation Targets for New Zealand, Canada, and the
United Kingdom, 1980–2017
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Studynotes101. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R77,00. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
50843 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 14 years now