EC233 Lecture Notes - Lecture 11: Monetary Policy, Deflation, Federal Funds Rate
Document Summary
Advantages of the greenspan approach: - uses many sources of information, - demonstrated macroeconomic success. Disadvantages: - lack of accountability, - lack of transparency. Advantages of the federal reserve"s just do it approach: Forward-looking behavior and stress on price stability also help to discourage overly expansionary monetary policy, thereby ameliorating the time-inconsistency problem. Disadvantages of the federal reserve"s just do it approach: Lack of transparency; strong dependence on the preferences, skills, and trustworthiness of the individuals in charge of the central bank. How should central banks respond to asset price (e. g. stock market or real. Asset-price bubble: pronounced increase in asset prices that depart from fundamental values, which eventually burst. Bubbles are easier to identify when asset prices and the amount of credit are increasing rapidly at the same time. Monetary policy should not be used specifically to extinguish bubbles. Macropudential policy: regulatory policy to affect what is happening in credit markets in the aggregate.
