多恩布什《宏观经济学》第十版英文原版I08revised

1、CHAPTER 8POLICY PREVIEWChapter Outline Monetary policy and the Fed Short-run policy goals The Taylor rule Interest rates and aggregate demand Open-loop and closed-loop controlChanges from the Previous EditionThis is a new chapter, presenting an overview of short-run monetary policy goals and the way

2、s in which a central bank can influence aggregate demand by setting interest rates. Emphasis is given to the Taylor rule, which advocates setting the level for the federal funds rate in response to deviations from desired levels of GDP or inflation. Most of the material of former Chapter 8 has been

3、shifted back to new Chapter 17, in which macroeconomic policy issues are discussed in more detail.Introduction to the MaterialMost of the macroeconomic policies designed to keep the U.S. economy on course are set by the Fed in meetings of the FOMC (Federal Open Market Committee). The FOMC is compris

4、ed of the seven-member Board of Governors plus five of the twelve Federal Reserve Bank presidents. The Chair of the Board of Governors presides over these FOMC meetings and has the most influence the decision making process.While monetary policy can influence economic activity in the short run, it c

5、an only affect the rate of inflation in the long run. Central banks conduct monetary policy by influencing short-term interest rates with the goal of achieving a high level of economic activity with a low level of inflation. In the U.S., the Fed currently does this by announcing a federal funds rate

6、 target. The target is set based on current economic conditions but also with an eye on possible future conditions. The Fed attempts to achieve the target through open market operations, that is, the buying and selling of Treasury bills.While the Fed does not follow a fixed rule in setting the feder

7、al funds rate, the actual behavior of the federal funds rate over the last few decades closely follows the predictions of the so-called Taylor rule, first advocated by John B. Taylor of Stanford University (see Box 8-2). This rule recommends that the Fed raise the federal funds rate by 1.5 percent i

8、f the inflation rate increases by 1 percent above a certain target inflation rate and that the federal funds rate should be raised by 0.5 percent if the GDP-gap increases by 1 percent. Some central banks have specific inflation targets; the U.S. Fed opts instead for some flexibility on monetary poli

9、cy, since inflation targeting limits its ability to respond to fluctuations in the unemployment rate.Equation 8-2 shows that the Fed can influence aggregate demand by changing interest rates. More specifically, expansionary monetary policy, that is, open market purchases by the Fed, will lower inter

10、est rates. This will increase spending on investment and durable consumption, thus shifting the AD-curve to the right. Output and the price level both increase in the short run; however, in the long run, output returns to the full-employment level. Thus in the long run only the price level is affect

11、ed. Setting the interest rate at a specified level in order to achieve a certain level of output is an example of an open-loop system. In an open loop system, the central bank specifies a target level for a particular variable and sticks to it. A closed-loop system, on the other hand, involves frequ

12、ent, small adjustments after an initial policy change has been undertaken and some time has passed to assess progress toward a target. Suggestions for LecturingMany students have little understanding of exactly how monetary policy decisions are made and implemented or what determines their timing. T

13、his chapter provides an opportunity to talk about how and why a central bank may set interest rates at a certain level in an effort to influence aggregate demand to achieve its monetary policy goals. Instructors may want to point out that while aggregate demand can be shifted by fiscal as well as mo

14、netary policy, most short-run policy adjustments are made through monetary policy changes that tend to be very cautionary in nature. While Chapter 16 explores the options that a central bank has to influence economic activity in more detail, instructors may want to give students at least a brief ove

15、rview here of how monetary policy changes are implemented in practical terms. Students should have learned in their introductory macroeconomics courses that a central bank conducts its monetary policy by influencing interest rates and that interest rate changes affect aggregate demand through change

16、s in investment spending or the consumption of durable goods. But students may not recall exactly how a central bank can implement these changes. It is important for students to know that in the U.S. most monetary policy decisions are voted on in meetings of the Federal Open Market Committee. While

17、the Chair of the Board of Governors of the Federal Reserve System has only one vote, his views generally carry the most weight in the debate preceding a policy decision. This is not necessarily the case in other countries, where policy decisions are made largely by the head of the central bank. Simi

18、larly, while the U.S. Fed is fairly independent from the administration, the governments of some other countries have much more influence over the actions of their central banks.Many economists, among them current Board Chair of the Fed Ben Bernanke, feel that transparency in the conduct of monetary

19、 policy is very important for its ultimate success. However, this view is far from universal and has not always been shared by those at the U.S. Fed. In the past, deliberations of the FOMC were withheld from the public for several weeks in order to avoid upsetting financial markets. Currently the fu

20、ll minutes of an FOMC meeting are not revealed until the next meeting, held six weeks later, but a statement is issued to give some advance notice of the Feds thinking and avoid too much speculation in financial markets. Fed officials tend to be very careful in statements made to the public. Former

21、Fed chair Alan Greenspan was a master at using language that would not give away too much about the Feds plans for the future. Nowadays, the Fed announces a target for the federal funds rate, that is, the interest rate that banks charge when one bank borrows from another. Students often confuse this

22、 rate with the discount rate, that is, the interest rate that the Fed charges a bank which borrows funds from it. The name “federal funds rate” tends to suggest to them that this is the rate that the Fed charges. Instructors therefore need to make sure that students know the difference between the t

23、wo. It can also be mentioned that the Fed used to signal a change in monetary policy by announcing a change in the discount rate. It now however indicates monetary policy changes by announcing a change in the federal funds rate target. The discussion of the reasons for this change should probably be

24、 postponed until Chapter 16, when students should have a better understanding of the workings of the Fed. Similarly, a detailed discussion of the transmission process, that is, the way in which monetary policy affects the economy, should also be postponed until later chapters to first allow students

25、 to gain a better understanding of the workings of the economy.Chapter 8 mentions two short-run goals of a central bank, namely, to keep economic activity high and inflation low. However, as we will learn later, there may be other policy goals and it may not be possible to achieve these goals simult

26、aneously. Since this chapter only attempts to familiarize students with the basics of how and why a central bank sets interest rates, it suffices to mention here that there is a conflict between the short run and the long run. In other words, a central bank can use monetary policy to stimulate econo

27、mic activity in the short run, but has to weigh the advantages of such action against the risk that this may cause more inflation in the long run.Policy makers have to make decisions under a great deal of uncertainty, as they never know how the public will respond to a particular policy change and t

28、herefore cannot be sure of the magnitude of the impact on the economy. Therefore it is always best for a central bank to proceed cautiously. One way in which central banks can respond to changes in either economic activity or the inflation rate is best summarized by the Taylor rule. This rule is an

29、example of a closed-loop system that is self-correcting. In other words, the rule provides feedback to policy makers on how to adjust the federal funds rate in response to previous changes effects on economic activity. Unfortunately, the long lags involved in conducting monetary policy still make it

30、 difficult for a central bank to consistently stabilize the economy, which is why changes are most often made in modest steps with frequent readjustments. To cite examples for monetary policy changes, instructors may want to mention that the U.S. Fed lowered the discount rate 15 times in small steps

31、 during the recession of 1991, without achieving the goal of significantly stimulating the economy. When the economy entered its next recession in 2001, the Fed lowered interest rates much more aggressively and achieved a much greater positive effect. Monetary policy affects economics activity thoug

32、h interest rates and therefore changes in investment and durable consumption, but these types of spending and the exact channels through which monetary policy affects the economy will be discussed in greater depth in later chapters. Without going into detail, instructors should point out that intere

33、st rates are an important link between the monetary sector and the expenditure sector and that a central bank has the ability to achieve certain policy goals by manipulating interest rates through the conduct of its monetary policy. In order to do so successfully, however, the central bank has to ei

34、ther set policy targets, hoping that by maintaining these targets the policy goal will be achieved (open-loop control), or by moving cautiously, making small and frequent policy adjustments based on feedback on the effects of previous actions (closed-loop control). In either case, due to the lags in

35、volved in monetary policy, such actions have to be anticipatory and success is by no means guaranteed. Additional ReadingsBernanke, Ben, “Inflation Targeting,” Review, FRB of St. Louis, July/August, 2004.Bernanke, B., et. al., “Missing the Mark: The Truth about Inflation Targeting,” Foreign Affairs,

36、 September/October, 1999. Bernanke, B. and Mishkin, F., “Inflation Targeting: A New Framework for Monetary Policy?” Journal of Economic Perspectives, Spring, 1997.Blinder, Alan, “Central Banking in a Democracy,” Economic Quarterly, FRB of Atlanta, Fall, 1996.Cogley, Timothy, “Why Central Bank Indepe

37、ndence Helps to Mitigate Inflationary Bias,” Economic Letter, FRB of San Francisco, May, 1997.The Economist, “The European Central Bank: Haughty Indifference, or Masterly Inactivity,” July 16, 2005.Greenspan, Alan, “Risk and Uncertainty in Monetary Policy,” American Economic Review, May, 2004. Judd,

38、 J. and Rudebusch, G., “Taylors Rule and the Fed: 1970-1997,” Review, FRB of San Francisco, 1998. Koenig, Evan, “Is the Fed Slave to a Defunct Economist?” Southwest Economy, FRB of Dallas, September/October, 1997Meyer, Laurence, “Inflation Targets and Inflation Targeting,” Review, FRB of St. Louis,

39、November/December, 2001. Mishkin, Frederic, “What Should Central Banks Do?” Review, FRB of St. Louis, November/December, 2000.Neely, Christopher, “The Federal Reserve Responds to Crises: September 11th Was Not the First,” Review, FRB of St. Louis, March/April, 2004. Poole, William, “Inflation Target

40、ing,” Review, FRB of St. Louis, May/June, 2006. Poole, William, “How Predictable is the Fed,” Review, FRB of St. Louis, November/December, 2005. Learning Objectives Students should know that, in practice, short-term macroeconomic stabilization policy is mostly implemented by the central bank through

41、 its manipulation of short-term interest rates. Students should be familiar with the fact that monetary policy affects the economy by changing interest rates which will affect aggregate demand, in particular, investment spending and spending on durable goods. Students should know that in many cases

42、a central bank has to decide on either a desired level of inflation or a desired level of output and that achieving both goals simultaneously is not always possible. Students should know that the Taylor rule is one way in which central banks can set interest rates in response to deviations in the de

43、sired levels of output or inflation. Students should be able to distinguish between open-loop and closed-loop systems. Solutions to the Problems in the TextbookConceptual Problems1.If , the inflation coefficient in the Taylor rule, is negative, then any increase in the actual inflation rate suggests

44、 to the central bank that it should lower interest rates. But lower interest rates will stimulate aggregate demand and therefore increase inflationary pressure. This, in turn, will suggest to the central bank that a further decrease in interest rate may be appropriate. In the end, the country can ea

45、sily experience runaway inflation. There is some evidence that the U.S. Feds attempts in the 1970s to achieve low interest rates in response to the oil shocks eventually led to double digit inflation. After Paul Volcker was appointed Chair of the Board of Governors, the Fed decided that long-run nom

46、inal interest rates could only be lowered by controlling inflation, which meant that short-run interest rates had to be raised by lowering monetary growth. Empirical Problems1. The following graph and table present the data used to calculate the federal funds rate implied by the Taylor rule as well

47、as the actual observed federal funds rate. The data used here is for the period 1960-2005, as some data for 2006 is not yet available. As the graph indicates, the interest rate implied by the Taylor rule moves very closely together with the actual federal funds rate. It seems to fit the data particu

48、larly well starting with the late 1980s.146Actual RGDPPotential RGDPOutput GapInflationTaylors rule implied FFRActual Federal Funds RateBillions of Chained 2000 dollars%19602501.82535.4-3.219612560.02631.9-2.019622715.22734.5-2.719632834.02843.3-3.219642998.62961.

49、03.519653191.1305.54.119663399.138.75.119673484.63376.04.219683652.7359.95.719693765.43611.28.219703771.93799.9-7.219713898.73929.0-4.719724104.9406.74.419734341.4416.18.719744319.54350.2-0.712.118.810.

50、519754311.24499.1-5.819764540.94647.6-2.35.07.45.019774750.64800.8-1.06.710.55.519785015.04967.01.09.015.07.919795173.55133.20.813.321.311.219805161.75289.4-2.412.418.313.419815291.75438.2-2.78.913.016.419825189.35584.1-12.319835423.85740.6-9.119845813.65910.8-1.64.06.210.

51、219856053.86096.9-8.119866263.66297.4-6.819876475.16501.3-6.719886742.76707.97.619896981.46909.01.019907112.57110.00.06.310.48.119917100.57304.5-2.83.04.15.719927336.67492.9-2.13.04.43.519937532.77685.3-2.019947835.57892.5-4.219958031.78

52、121.1-5.819968328.98371.1-5.319978703.5863.95.519989066.9894.15.419999470.49280.92.02.76.05.020009817.09634.06.220019890.79990.6-1.0200210048.910341.6-1.7200310301.110677.2-1.1200410703.511015.4-1.3200511048.611366.9-

53、3.2Additional Problems1.Explain the short-run effect of expansionary monetary policy on interest rates, output, and prices. In your answer indicate how a central bank can implement expansionary monetary policy.A central bank wishing to implement expansionary monetary policy, will most often

54、 do so through open market purchases, that is, by buying government bonds from the public. This will increase bank reserves and therefore money supply, leading to a decrease in interest rates. The lower interest rates will stimulate spending on investment and durable consumption, so aggregate demand

55、 will increase. The resulting shift of the AD-curve to the right causes the levels of output and prices to increase. 2. Briefly comment on the following statement: “Restrictive monetary policy leads to lower consumption and investment spending.” A reduction in money supply raises interest rates, which, in turn, has a negative effect on the level of investment spending. The level of (durable) consumption may also decrease as it becomes more costly to finance expenditures on durable goods by borrowing funds. But even if it is assumed that consumption i