Download Issues in Monetary Policy: The Relationship Between Money by Kent Matthews, Philip M. Booth PDF
By Kent Matthews, Philip M. Booth
This publication is a superb piece that discusses the connection among financial coverage and marketplace job. it'll need to be up-to-date for the newest obstacle matters.
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It is a natural heuristic around which agents can form their expectations. And the discretion in responding to shocks afforded by inflation targeting allows the central bank to adapt its strategy to new information. That is why inflation targeting is sometimes referred to as a framework of ‘constrained discretion’. Following a shock which moves inflation away from target and output from its normal level, there is discretion about the horizon over which inflation is brought back to target. But the exercise of that discretion must be clearly explained and justified in terms of the need, in the words of the remit of the Monetary Policy Committee, to avoid ‘undesirable volatility in output’.
11 An excellent example is the recent book by Michael Woodford (2003) which builds on the ideas of the Swedish economist Knut Wicksell one hundred years ago that the key to price stability lies in thinking about the appropriate path for future nominal interest rates. 1 The Maradona theory of interest rates in 2002 Note: The black line represents the bank of England official interest rate. The shaded lines represent the market’s expectations of future interest rates, as calculated in each of the four Inflation Reports published in 2002.
In practice, central bankers are well aware that there is not one rate of interest – but three, at least – that matter for monetary policy. These are: the rates on overnight money, such as Fed Funds; the three-month interest rate, which influences base borrowing costs; and the government bond yield, which is important for investment. There is also a growing central-bank literature on the ‘pass through’ problem, that is the limited extent to which changes in REPO rates influence the rates charged by commercial lenders.