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2 edition of Should monetary policy respond strongly to the output gaps? found in the catalog.

Should monetary policy respond strongly to the output gaps?

Bennett T. McCallum

Should monetary policy respond strongly to the output gaps?

by Bennett T. McCallum

  • 347 Want to read
  • 7 Currently reading

Published by National Bureau of Economic Research in Cambridge, MA .
Written in English

    Subjects:
  • Monetary policy -- Econometric models.

  • Edition Notes

    StatementBennett T. McCallum.
    GenreEconometric models.
    SeriesNBER working paper series -- working paper 8226, Working paper series (National Bureau of Economic Research) -- working paper no. 8226.
    ContributionsNational Bureau of Economic Research.
    The Physical Object
    Pagination13 p. :
    Number of Pages13
    ID Numbers
    Open LibraryOL22420763M

    This lecture examines how the recent global financial crisis changes our thinking about how monetary policy should be conducted. It starts with a discussion of the science and practice of monetary policy before the crisis and then uses the lessons from the crisis to argue how the practice of monetary policy should be rethought along six dimensions: flexible inflation targeting, response to Cited by: 9. - McCallum, B., (), “Should Monetary Policy Respond Strongly to Output Gaps”, American Economic Review, May, pp. – 7)- Discretionary Policy and Time Inconsistency.

    Monetary policy rules are formulas that prescribe a tight link between a small number of economic variables--typically including the gap between actual and target inflation along with an estimate of resource slack in the economy--and the setting of a policy rate, such as the federal funds rate. 1 While policy rules can provide helpful guidance for policymakers, their interpretation requires. Macroeconomics, Monetary Policy, and the Crisis 5 Macroeconomics, Monetary Policy, and the Crisis Joseph E. Stiglitz I begin with a simple observation: the current global economic crisis was man-made. This was the consensus of both the U.S. Financial Crisis Inquiry Commission in its report 1, as well as a broad range of economists. The.

      M cCallum, B ennett T. (), “Should Monetary Policy Respond Strongly to Output Gaps?”, American Economic Review, 91(2), pp. – Article Google ScholarCited by: Inflation-forecast targeting is state of the art for monetary policy. This book explores first principles, including managing short-term policy trade-offs. The book also outlines efficient operational procedures and reviews the experiences of Canada, the Czech Republic, and India. The analysis highlights the need for assertive policies and maximum transparency.


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Should monetary policy respond strongly to the output gaps? by Bennett T. McCallum Download PDF EPUB FB2

A major policy issue is whether it is desirable for monetary policy to respond strongly to the output gap. The paper argues that the latter is unobservable and considers the implications of using a trend-type measure while the true concept is of a type more in keeping with basic theory.

Get this from a library. Should monetary policy respond strongly to the output gaps?. [Bennett T McCallum; National Bureau of Economic Research.]. Get this from a library. Should Monetary Policy Respond Strongly to Output Gaps?.

[Bennett T McCallum; National Bureau of Economic Research.;] -- Much recent monetary policy analysis has featured stochastic simulations with small structural macroeconomic models that include: a spending vs. saving (IS') sector; a price-adjustment sector; and an.

A Monetary Policy Masterpiece Of A Book That Everyone Should Read. the country soon enough imported Dutch monetary policy; policy that Author: John Tamny.

ability to respond forcefully to adverse shocks.fl(Bernanke, ). Central bankers often emphasize the need to communicate with the public to improve its under-standing of monetary policy. As the argument goes, this should allow households and –rms to make better-informed price- and wage-setting decisions, and improve policy e⁄ectiveness.

output gap can play a central role in the conduct of effective monetary policy. A positive output gap might prompt policymakers to cool an overheating economy by raising policy rates, while a negative output gap might prompt monetary stimulus. In practice, however. Gaps and Monetary Policy.

Roc Armenter, Michael Dotsey, Andreas Hornstein, Thomas Lubik, Keith Sill, Alexander Wolman. In this memo we discuss how economic theory based on nominal rigidities informs our thinking about monetary policy. We concentrate on two concepts that play a role in FOMC discussions: inflation persistence and output gaps.

Downloadable. This paper analyses the relationship between monetary policy and asset prices using a structural rational expectations model that allows for the effect of asset prices on aggregate demand.

We assume that asset prices follow a partial adjustment mechanism whereas they are positively affected by past changes, thus allowing for ‘momentum trading’, while at the same time we allow Cited by: Should Monetary Policy Respond Strongly to Output Gaps.

w Published: McCallum, Bennett T. "Should Monetary Policy Respond Strongly To Output Gaps?," American Economic Review,v91(2,May), citation courtesy of. March Monetary Policy Analysis in Models Without Money w Published: McCallum, Bennett T. Output gap measures are used as if they were essential and reliable for assessing macroeconomic policies.

Both fiscal and monetary policy reaction functions use output gap estimates as an input in assessing the appropriate settings for relevant instruments (e.g., Cited by: 9. But it seems possible interest rate policy could close output gaps and stabilize inflation within about a year—that is, with the speed of getting the economy back on track limited only by the well-known 9- to month lag in the effect of monetary policy.

“Should Monetary Policy Respond Strongly to Output Gaps?” American Economic Association Papers and Proceedings, – (ix) Svensson. L.E.O. “Inflation Targeting,” NBER Working Paper, No. (x) Walsh, C.E. “Speed Limit Policies: The Output Gap and Optimal Monetary Policy,” American Economic Review, Had this measure been used for the output gap, the Taylor rule would have prescribed a positive interest rate since early and would currently call for the federal funds rate to be around 2 percent annually.

Martin concluded, “This exercise suggests that the debate about monetary policy should revolve around how to measure potential output. government can respond with a policy that leans against the direction in which the economy is headed.

Monetary policy is often that countercyclical tool of choice. Such a countercyclical policy would lead to the desired expansion of output (and employment). But, because it entails an increase in the money supply, it would also result inFile Size: 77KB. Mankiw, Gregory, "U.S.

Monetary Policy During the s", NBER Working Paper No. September ; McCallum, Bennett, "Should Monetary Policy Respond Strongly to Output Gaps?", NBER Working Paper No.

April when is it most appropriate to use stabilization policy to eliminate output gaps. great credibility of monetary policy. Econ - Chapter 14 79 Terms. sriche5. Econ Final 75 Terms. chloe_huff. OTHER SETS BY THIS CREATOR.

MGT Exam 1 - Strategic Planning 39 Terms. * M cCallum, Bennett (), "Should Monetary Policy Respond Strongly to Output Gaps?'', AEA Papers and Proceedings, May * Rotemberg, Julio J., and M ichael Woodford (), "Interest Rate Rules in an Estimated Sticky Price Model" (link to WP version), Chapter 2 in Monetary Policy Rules, eds.

\Should Monetary Policy Respond Strongly to Output Gaps?" American Economic Association Papers and Proceedings, { (vii)Woodford, M. \Optimal Monetary Stabilization Policy," NBER Working Paper, No.

(viii)Woodford, M. \Optimal Monetary Policy Inertia," NBER Working Paper, No. (IV)Monetary Policy Rules The.

Overestimating how far the economy is away from its potential unnecessarily risks delaying the end of unusual monetary accommodation.

With inflation slightly below its long-run target and the unemployment rate down to percent, markets have come to expect that the Federal Open Market Committee (FOMC) will soon begin to remove unusual monetary accommodation—that is, start raising short. Monetary policy has several important aims including eliminating unemployment, stabilizing prices, economic growth and equilibrium in the balance of payments.

Monetary policy is planned to fulfill all these goals at once. Everyone agrees with these ambitions, but the path to achieve them is the subject of heated contention. However, the effectiveness of fiscal and monetary policy does depend on several factors. For example, fromtraditional monetary policy was ineffective in closing the output gap.

Banks didn’t pass on lower interest rates. Due to large losses, banks were reluctant to lend and firms couldn’t borrow, even though base rates were low.Output Gaps and Monetary Policy at Low Interest Rates.

Two indicators of economic activity often used to guide monetary policy are the output gap and the growth rate of real GDP. The output.The monetary policy implications of this scenario are not automatic, could in theory go either way, and would depend on the combined effects on demand, supply, and the exchange rate.

In my view, we should not maintain an overly loose stance as insurance against this scenario. Rather, we should be prepared to respond as needed if it happens. ***.