Monetary Policy in a Low Inflation Economy with Learning PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Monetary Policy in a Low Inflation Economy with Learning PDF full book. Access full book title Monetary Policy in a Low Inflation Economy with Learning by John C. Williams. Download full books in PDF and EPUB format.
Author: John C. Williams
Publisher:
ISBN:
Category :
Languages : en
Pages : 28
Get Book Here
Book Description
In theory, monetary policies that target the price level, as opposed to the inflation rate, should be highly effective at stabilizing the economy and avoiding deflation in the presence of the zero lower bound on nominal interest rates. With such a policy, if the short-term interest rate is constrained at zero and the inflation rate declines below its trend, the public expects that policy will eventually engineer a period of above-trend inflation that restores the price level to its target level. Expectations of future monetary accommodation stimulate output and inflation today, mitigating the effects of the zero bound. The effectiveness of such a policy strategy depends crucially on the alignment of the public's and the central bank's expectations of future policy actions. In this paper, we consider an environment where private agents have imperfect knowledge of the economy and therefore continuously reestimate the forecasting model that they use to form expectations. We find that imperfect knowledge on the part of the public, especially regarding monetary policy, can undermine the effectiveness of price-level-targeting strategies that would work well if the public had complete knowledge. For low inflation targets, the zero lower bound can cause a dramatic deterioration in macroeconomic performance with severe recessions occurring with alarming frequency. However, effective communication of the policy strategy that reduces the public's confusion about the future course of monetary policy significantly reduces the stabilization costs associated with the zero bound. Finally, the combination of learning and the zero bound implies the need for a stronger policy response to movements in the price level than would otherwise be optimal and such a rule is effective at stabilizing both inflation and output in the presence of learning and the zero bound even with a low inflation target.
Author: John C. Williams
Publisher:
ISBN:
Category :
Languages : en
Pages : 28
Get Book Here
Book Description
In theory, monetary policies that target the price level, as opposed to the inflation rate, should be highly effective at stabilizing the economy and avoiding deflation in the presence of the zero lower bound on nominal interest rates. With such a policy, if the short-term interest rate is constrained at zero and the inflation rate declines below its trend, the public expects that policy will eventually engineer a period of above-trend inflation that restores the price level to its target level. Expectations of future monetary accommodation stimulate output and inflation today, mitigating the effects of the zero bound. The effectiveness of such a policy strategy depends crucially on the alignment of the public's and the central bank's expectations of future policy actions. In this paper, we consider an environment where private agents have imperfect knowledge of the economy and therefore continuously reestimate the forecasting model that they use to form expectations. We find that imperfect knowledge on the part of the public, especially regarding monetary policy, can undermine the effectiveness of price-level-targeting strategies that would work well if the public had complete knowledge. For low inflation targets, the zero lower bound can cause a dramatic deterioration in macroeconomic performance with severe recessions occurring with alarming frequency. However, effective communication of the policy strategy that reduces the public's confusion about the future course of monetary policy significantly reduces the stabilization costs associated with the zero bound. Finally, the combination of learning and the zero bound implies the need for a stronger policy response to movements in the price level than would otherwise be optimal and such a rule is effective at stabilizing both inflation and output in the presence of learning and the zero bound even with a low inflation target.
Author: Peter J. N. Sinclair
Publisher: Routledge
ISBN: 1135179778
Category : Business & Economics
Languages : en
Pages : 402
Get Book Here
Book Description
Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved. The main focus of the volume is on likely inflation developments. A number of factors have led practitioners and academic observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing many important economies including Brazil, Canada, Israel and Great Britain. Even more significantly, the European Central Bank, the Bank of Japan and the United States Federal Bank are the leading members of another group of monetary institutions all considering or implementing moves in the same direction. A second is the large reduction in actual inflation that has been observed in most countries over the past decade or so. These considerations underscore the critical – and largely underrecognized - importance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, under the steely editorship of Peter Sinclair, should prove very important for policy makers and monetary economists alike.
Author: Athanasios Orphanides
Publisher: DIANE Publishing
ISBN: 1437935613
Category : Business & Economics
Languages : en
Pages : 46
Get Book Here
Book Description
What monetary policy framework, if adopted by the Federal Reserve, would have avoided the Great Inflation of the 1960s and 1970s? The authors use counterfactual simulations of an estimated model of the U.S. economy to evaluate alternative monetary policy strategies. The authors document that policymakers at the time both had an overly optimistic view of the natural rate of unemployment and put a high priority on achieving full employment. They show that in the presence of realistic informational imperfections and with an emphasis on stabilizing economic activity, an optimal control approach would have failed to keep inflation expectations well anchored, resulting in highly volatile inflation during the 1970s. Charts and tables.
Author: Michael D. Bordo
Publisher: University of Chicago Press
ISBN: 0226066959
Category : Business & Economics
Languages : en
Pages : 545
Get Book Here
Book Description
Controlling inflation is among the most important objectives of economic policy. By maintaining price stability, policy makers are able to reduce uncertainty, improve price-monitoring mechanisms, and facilitate more efficient planning and allocation of resources, thereby raising productivity. This volume focuses on understanding the causes of the Great Inflation of the 1970s and ’80s, which saw rising inflation in many nations, and which propelled interest rates across the developing world into the double digits. In the decades since, the immediate cause of the period’s rise in inflation has been the subject of considerable debate. Among the areas of contention are the role of monetary policy in driving inflation and the implications this had both for policy design and for evaluating the performance of those who set the policy. Here, contributors map monetary policy from the 1960s to the present, shedding light on the ways in which the lessons of the Great Inflation were absorbed and applied to today’s global and increasingly complex economic environment.
Author: John B. Taylor
Publisher: University of Chicago Press
ISBN: 0226791262
Category : Business & Economics
Languages : en
Pages : 460
Get Book Here
Book Description
This timely volume presents the latest thinking on the monetary policy rules and seeks to determine just what types of rules and policy guidelines function best. A unique cooperative research effort that allowed contributors to evaluate different policy rules using their own specific approaches, this collection presents their striking findings on the potential response of interest rates to an array of variables, including alterations in the rates of inflation, unemployment, and exchange. Monetary Policy Rules illustrates that simple policy rules are more robust and more efficient than complex rules with multiple variables. A state-of-the-art appraisal of the fundamental issues facing the Federal Reserve Board and other central banks, Monetary Policy Rules is essential reading for economic analysts and policymakers alike.
Author: Ben S. Bernanke
Publisher: W. W. Norton & Company
ISBN: 1324020474
Category : Business & Economics
Languages : en
Pages : 448
Get Book Here
Book Description
21st Century Monetary Policy takes readers inside the Federal Reserve, explaining what it does and why. In response to the COVID-19 pandemic, the Federal Reserve deployed an extraordinary range of policy tools that helped prevent the collapse of the financial system and the U.S. economy. Chair Jerome Powell and his colleagues lent directly to U.S. businesses, purchased trillions of dollars of government securities, pumped dollars into the international financial system, and crafted a new framework for monetary policy that emphasized job creation. These strategies would have astonished Powell’s late-20th-century predecessors, from William McChesney Martin to Alan Greenspan, and the advent of these tools raises new questions about the future landscape of economic policy. In 21st Century Monetary Policy, Ben S. Bernanke—former chair of the Federal Reserve and one of the world’s leading economists—explains the Fed’s evolution and speculates on its future. Taking a fresh look at the bank’s policymaking over the past seventy years, including his own time as chair, Bernanke shows how changes in the economy have driven the Fed’s innovations. He also lays out new challenges confronting the Fed, including the return of inflation, cryptocurrencies, increased risks of financial instability, and threats to its independence. Beyond explaining the central bank’s new policymaking tools, Bernanke also captures the drama of moments when so much hung on the Fed’s decisions, as well as the personalities and philosophies of those who led the institution.
Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1498344062
Category : Business & Economics
Languages : en
Pages : 74
Get Book Here
Book Description
Over the past two decades, many low- and lower-middle income countries (LLMICs) have improved control over fiscal policy, liberalized and deepened financial markets, and stabilized inflation at moderate levels. Monetary policy frameworks that have helped achieve these ends are being challenged by continued financial development and increased exposure to global capital markets. Many policymakers aspire to move beyond the basics of stability to implement monetary policy frameworks that better anchor inflation and promote macroeconomic stability and growth. Many of these LLMICs are thus considering and implementing improvements to their monetary policy frameworks. The recent successes of some LLMICs and the experiences of emerging and advanced economies, both early in their policy modernization process and following the global financial crisis, are valuable in identifying desirable features of such frameworks. This paper draws on those lessons to provide guidance on key elements of effective monetary policy frameworks for LLMICs.
Author: Christina D. Romer
Publisher: University of Chicago Press
ISBN: 0226724832
Category : Business & Economics
Languages : en
Pages : 434
Get Book Here
Book Description
While there is ample evidence that high inflation is harmful, little is known about how best to reduce inflation or how far it should be reduced. In this volume, sixteen distinguished economists analyze the appropriateness of low inflation as a goal for monetary policy and discuss possible strategies for reducing inflation. Section I discusses the consequences of inflation. These papers analyze inflation's impact on the tax system, labor market flexibility, equilibrium unemployment, and the public's sense of well-being. Section II considers the obstacles facing central bankers in achieving low inflation. These papers study the precision of estimates of equilibrium unemployment, the sources of the high inflation of the 1970s, and the use of non-traditional indicators in policy formation. The papers in section III consider how institutions can be designed to promote successful monetary policy, and the importance of institutions to the performance of policy in the United States, Germany, and other countries. This timely volume should be read by anyone who studies or conducts monetary policy.
Author: Michael Carlberg
Publisher: Springer Science & Business Media
ISBN: 3540793011
Category : Business & Economics
Languages : en
Pages : 250
Get Book Here
Book Description
This book studies the coexistence of inflation and unemployment in a monetary union. The focus is on how to reduce the associated loss. The primary target of the European central bank is low inflation in Europe. The primary target of the German government is low unemployment in Germany. And the primary target of the French government is low unemployment in France. The European central bank has a quadratic loss function. The same applies to the German government and the French government. The key questions are: To what extent can the sequential process of monetary and fiscal decisions reduce the loss caused by inflation and unemployment? Is monetary and fiscal cooperation superior to the sequential process of monetary and fiscal decisions? The present book is part of a larger research project on European Monetary Union, see the references given at the back of the book. Some parts of this project were presented at the World Congress of the International Economic Association, at the International Conference on Macroeconomic Analysis, at the International Institute of Public Finance, and at the International Atlantic Economic Conference. Other parts were presented at the Macro Study Group of the German Economic Association, at the Annual Meeting of the Austrian Economic Association, at the Göttingen Workshop on International Economics, at the Halle Workshop on Monetary Economics, at the Research Seminar on Macroeconomics in Freiburg, at the Research Seminar on Economics in Kassel, and at the Passau Workshop on International Economics.
Author: Jordi Galí
Publisher: Princeton University Press
ISBN: 1400866278
Category : Business & Economics
Languages : en
Pages : 295
Get Book Here
Book Description
The classic introduction to the New Keynesian economic model This revised second edition of Monetary Policy, Inflation, and the Business Cycle provides a rigorous graduate-level introduction to the New Keynesian framework and its applications to monetary policy. The New Keynesian framework is the workhorse for the analysis of monetary policy and its implications for inflation, economic fluctuations, and welfare. A backbone of the new generation of medium-scale models under development at major central banks and international policy institutions, the framework provides the theoretical underpinnings for the price stability–oriented strategies adopted by most central banks in the industrialized world. Using a canonical version of the New Keynesian model as a reference, Jordi Galí explores various issues pertaining to monetary policy's design, including optimal monetary policy and the desirability of simple policy rules. He analyzes several extensions of the baseline model, allowing for cost-push shocks, nominal wage rigidities, and open economy factors. In each case, the effects on monetary policy are addressed, with emphasis on the desirability of inflation-targeting policies. New material includes the zero lower bound on nominal interest rates and an analysis of unemployment’s significance for monetary policy. The most up-to-date introduction to the New Keynesian framework available A single benchmark model used throughout New materials and exercises included An ideal resource for graduate students, researchers, and market analysts
