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Lectures in Macroeconomics- Charles W. Upton Monetary Policy Rules.
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Lectures in Macroeconomics- Charles W. Upton Monetary Policy Rules ) , ( U f M M
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Transcript of Lectures in Macroeconomics- Charles W. Upton Monetary Policy Rules.
Lectures in Macroeconomics- Charles W. Upton
Monetary Policy Rules
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Monetary Policy Rules
Monetary Policy Rules
• Announce Monetary Policy as a function of conditions.
• Thus people know what you are doing. ),( UfM
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Monetary Policy Rules
The Taylor Rule
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Monetary Policy Rules
Tradeoffs
Unemployment too high? We need to raise , which we do by increasing money growth.
BUT if we overdo that, we will get inflation
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Monetary Policy Rules
Tradeoffs
Inflation too high? We cut it by decreasing money growth.
BUT if we overdo that, we will get unemployment
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Monetary Policy Rules
Publicity
And, no matter what we do, there are a number of people nervously looking over our shoulder. We can create anxiety and uncertainty.
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Monetary Policy Rules
A Possible Rule
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Monetary Policy Rules
A Possible Rule
)(5.1%)2(5.0%4 nUUM
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Monetary Policy Rules
A Possible Rule
)(5.1%)2(5.0%4 nUUM
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Monetary Policy Rules
A Possible Rule
)(5.1%)2(5.0%4 nUUM
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Monetary Policy Rules
A Possible Rule
Make it Public!
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Monetary Policy Rules
A Possible Rule
What happens if you don’t stick to the rule?
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Monetary Policy Rules
Changing Conditions
What happens if conditions change?
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Monetary Policy Rules
Changing Conditions
What happens if conditions change?
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Monetary Policy Rules
The Friedman Rule
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Make it Public!
Monetary Policy Rules
Why the Friedman Rule?Interventions 10
Made the situation better (narrowed the gap between and e)
7
Made the situation worse (increased the gap between and e)
3
Interventions 10 Made the situation better (narrowed the gap between and e)
3
Made the situation worse (increased the gap between and e)
7
Monetary Policy Rules
Why the Friedman Rule?Interventions 10
Made the situation better (narrowed the gap between and e)
7
Made the situation better (narrowed the gap between and e)
3
Interventions 10 Made the situation better (narrowed the gap between and e)
3
Made the situation better (narrowed the gap between and e)
7
Monetary Policy Rules
The Greenspan Rule
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Monetary Policy Rules
The Greenspan Rule
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MA thorough analysis of economic conditions
Monetary Policy Rules
The Greenspan Rule
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MA careful throwing of
darts
Monetary Policy Rules
Velocity
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Monetary Policy Rules
Velocity
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VV
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with DeclinesInitially
Monetary Policy Rules
Velocity
Monetary Policy Rules
End
©2004 Charles W. Upton. All rights reserved
