ECON 102 Lecture Notes - Lecture 19: Federal Funds Rate, Neutrality Of Money, Monetarism

• School: U of M
• Department: Economics
• Course: ECON 102
• Professor: Adam Stevenson

Document Summary

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: (cid:862)e(cid:454)pa(cid:374)d m (cid:271)(cid:455) e(cid:454)a(cid:272)tl(cid:455) (cid:1008). (cid:1007)(cid:1008) (cid:271)illio(cid:374)! (cid:863) In fact, the fed makes marginal changes, and typically they are slow: steering a ship vs steering a bike, fu(cid:396)the(cid:396), (cid:449)he(cid:374) the fomc issues poli(cid:272)(cid:455) (cid:272)ha(cid:374)ges, the(cid:455) do(cid:374)"t take the fo(cid:396)(cid:373) a(cid:271)o(cid:448)e. 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. Increase money at the rate glr, and do nothing else. Fed"s legislated goals a(cid:396)e sill(cid:455)(cid:895: but let"s appl(cid:455) the (cid:373)odel at ha(cid:374)d, (cid:449)ith o(cid:374)e (cid:373)odifi(cid:272)atio(cid:374, we"(cid:448)e (cid:271)ee(cid:374) assu(cid:373)i(cid:374)g that ra is flat: sti(cid:272)k(cid:455) p(cid:396)i(cid:272)es.