The monetary policy reaction curve

Money and Banking: Lecture 41 provides students with content about: money growth, inflation and aggregate demand; long run real interest rate; monetary policy reaction curve; aggregate demand curve;... Please refer to the lesson for details!

26p hanlamcoman 26-11-2022 6 2   Download

Money and Banking: Lecture 42 provides students with content about: money growth, inflation and aggregate demand; long run real interest rate; monetary policy reaction curve; aggregate demand curve; shifts in aggregate demand;... Please refer to the lesson for details!

22p hanlamcoman 26-11-2022 9 2   Download

To ensure that deviations of inflation from the target are only temporary, monetary policymakers respond to change in inflation by changing the real interest rate in the same direction. The monetary policy reaction curve is set so that when current inflation equals target inflation, the real interest rate equals the long-run real interest rate.

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Moreover, the necessity of taking into account monetary policy in the rational expectations framework has been demonstrated in particular by the seminal work of Mankiw and Miron (1986) for the short end of the term structure. For the long part of the term structure, Fuhrer (1996), without specifying any process for the perception of regime shifts by agents, has shown that the expectations hypothesis can be accepted for the long part of the yield curve if we allow some small and discrete changes in the coe¢ cients of the reaction function for the Federal Reserve System.

0p taisaovanchuavo 23-01-2013 54 2   Download