【教学课件】货币金融学7版英文课件-18-大学课件

【教学课件】货币金融学7版英文课件--18-大学课件GoalsofMonetaryPolicyGoals1. HighEmployment2. EconomicGrowth3. PriceStability4. InterestRateStability5. FinancialMarketStability6. ForeignExchangeMarketStabilityGoalsofteninconflict2HighEmploymentHighemploymentisaworthygoalfortworeasons:1.Thealternativesituation,highunemployment,causesmuchhumanmisery,withpeoplesufferingfinancialdistress,lossofpersonalself-respect,and

incrime.2.Whenuishigh,theeconomyhasnotonlyidleworkersbutalsoidleresources,resultinginalowerGDP.Buthowlowshouldube?Becausefrictionalunemployment(whichinvolvessearchesbyworkersandfirmstofindsuitablematchups)isdesirable,andbecausepolicycandolittleaboutstructuralunemployment(duetoamismatchbetweenjobrequirementsandtheskillsofworkers),thegoalofhighemploymentshouldseeknotu=0butu>0consistentwithfullemployment(atwhichthedemandforlaborequalsthesupplyoflabor).Thislevelofuiscalledthenaturalrateofunemployment.3EconomicGrowthThegoalofsteadyeconomicgrowthiscloselyrelatedtothegoaloflowubecausebusinessesaremorelikelytoinvestinphysicalcapitalto

productivityandgrowthwhenuislow.Ifuishighandfactoriesareidle,itdoesnotpayforfirmstoinvestinadditionalphysicalcapital.Hence,policiescanbespecificallyaimedatpromotingeconomicgrowthbydirectlyencouragingfirmstoinvestorbyencouragingpeopletosave,whichprovidesmorefundsforfirmstoinvest.Infact,thisisthestatedpurposeofso-calledsupply-sideeconomicpolicies,whichprovidetaxincentivesforfirmstoinvestmoreandforpeopletosavemore.4PriceStabilityInrecentyearspolicymakershavebecomeincreasinglyawareofthesocialandeconomiccostsofinflationandmoreconcernedwithastablePasagoalofeconomicpolicy.Infact,Pstabilityisviewedasthemostimportantgoalformonetarypolicybecauseinflationcreatesuncertaintythatmayhergrowthinflationmakesithardtoplanforthefutureinflationmaystrainacountry’ssocialfabric(bycreatingconflictsbetweendifferentgroups)extremeinflation,knownashyperinflation,leadstoslowergrowthasforexleinArgentina,Brazil,andRussiaintherecentpast.5Interest-RateStabilityInterest-ratestabilityisdesirablebecausefluctuationsininterestratescancreateuncertaintyandmakeitharder(forbothfirmsandhouseholds)toplanforthefuture.Acentralbankmayalsowanttoreduceupwardmovementsininterestratesbecausesuchmovementsgeneratehostilitytowardcentralbanksandleadtodemandsthattheirindependenceandpowershouldbereduced(seeChapter14).6StabilityofFinancialMarketsFinancialcrisescaninterferewiththeabilityoffinancialmarketstochannelfundsfromsurplusspendingunitstodeficitspendingunits,therebyleadingtoasharpcontractionineconomicactivity.Thepromotionofamorestablefinancialsysteminwhichfinancialcrisesareavoidedisthusanimportantgoalforacentralbank.Thestabilityoffinancialmarketsisalsofosteredbyistabilitybecausefluctuationsinicreateuncertaintyforfinancialfirms,affectingboththeirprofitsaswellastheirnetworth.7StabilityinForeignExchangeMarketsThevalueofthe$hasbecomeamajorconsiderationfortheBankofCanada.An

inEmakesCanadianindustrieslesscompetitivewiththoseabroadanda

inEstimulatesinflationinCanada.AlsopreventinglargechangesinEmakesiteasierforfirmsandpeopleinvolvedininternationaltradetoplanahead.StabilizingextrememovementsinEinFXmarketsisthusviewedasaworthygoalofmonetarypolicy.Infact,incountrieswhichareevenmoredependentonforeigntrade,stabilityinFXmarketstakesonevengreaterimportance.8ConflictAmongGoalsManyofthegoalsmentionedareconsistentwitheachotheras,forexle,highemploymentwitheconomicgrowth,andistabilitywithfinancialmarketstability.However,Pstabilityisinconflictwithistabilityandlowuintheshortrun(butprobablynotinthelongrun).Forexle,whentheeconomyisexpandingandubothandimaystartto.IftheBanktriestopreventanini,thismaycausetheeconomytooverheatandstimulate.ButiftheBankitoprevent,intheshortrunumay.Theconflictamonggoalsmaythuspresentcentralbankswithsomehardchoices!9CentralBankStrategy10Useof(OperatingandIntermediate)TargetsSupposethattheBankwantstoachievea5%rateofgrowthfornominalGDPandistargetinganaggregate(sayM1+).IftheBankfeelsthatthe5%nominalGDPgrowthratewillbeachievedbya4%growthrateforM1+(itsintermediatetarget),whichwillinturnbeachievedbya3%MBgrowthrate(itsoperatingtarget),itwilluseitstoolstoachievethe3%MBgrowthrate.Afterimplementingthispolicy,iftheBankfindsthatMBisgrowingtooslowly,itcanuseopenmarketpurchasestoincreaseit.SomewhatlatertheBankwillbegintoseehowitspolicyaffectsthegrowthrateofM1+.IfM1+isgrowingtoofast(sayat7%),theBankwillreduceitsopenmarketpurchasesormakeopenmarketsalestoreducetheM1+growthrate.11MoneySupplyTarget1. MdfluctuatesbetweenMd'andMd''2. WithM-targetatM*,ifluctuatesbetweeni'andi''12InterestRateTarget1. Md

fluctuatesbetweenMd'and

Md''2. Toseti-targetati*MsfluctuatesbetweenM'andM''13ChoosingTargetsTheconclusionfromFigures18-2and18-3isthatinterestrateandmonetaryaggregatetargetsareincompatible:acentralbankcanhitoneortheotherbutnotboth.Becauseachoicebetweenthemhastobemade,weneedtoexaminewhatcriteriashouldbeusedtodecideonthetargetvariable.14CriteriaforChoosingTargetsCriteriaforIntermediateTargets1. Measurability2. Controllability3. AbilitytoPredictablyAffectGoalsInterestratesaren’tclearlybetterthanMsoncriteria1and2becausehardtomeasureandcontrolrealinterestratesCriteriaforOperatingTargetsSamecriteriaasaboveReserveaggregatesandinterestratesaboutequaloncriteria1and2.For3,ifintermediatetargetisMs,thenreserveaggregateisbetter15HistoryofBankofCanadaPolicyProceduresEarlyYears:InterestRateTargeting1962-1971,Fixedexchangerate(BrettonWoodsSystem)1971-1975,FlexibleexchangerateResult:Duringtheearlyyears,ior(i-i*)weretheintermediatetargetofCanadianmonetarypolicyandtheBank’sobjectivewastokeeptheFXmarketanddomesticbondmarketsfunctioningsmoothly.TheBankpaidnoattentiontothegrowthrateofM.Asaresult,monetarypolicywasexpansionaryandby1974

todoubledigits(to11%)comparedtoonly3%in1971.16InflationRatesInterestRatesDuringtheearlyyears,ior(i-i*)weretheintermediatetargetofCanadianmonetarypolicy.Asaresult,iandfollowedgenerallysimilarpatternsinCanadaandtheU.S.17

Bytheendof1975therewasaconsensusamongcentralbanksthatfluctuationsinMcontainedusefulinformationaboutPandY.Thisevidencecontributedtotheriseofmonetarism(atheorythatemphasizedasteady,predictable

).Inresponsetothisandtherising

intheearly1970’s,theBankintroducedaprogramof“monetarygradualism,”underwhichM1growthwouldbecontrolledwithinagraduallyfallingtargetrange(seeTable18-1).TheBank,however,continuedtouseaninterestrateasitsoperatingtarget

Result:

BankwassuccessfulatkeepingactualM1growthwithinthetargetrange(seeTable18-1),butbecauseofaseriesoffinancialinnovationsthatthedemandforM1andthedemandforM2.MonetarytargetingwasabandonedinNovember1982.TargetingMonetaryAggregates:1975-8118TheBankwastoannounceinadvance(inordertoinfluencepeople’s

expectations)thetargetpathforthegrowthofM1andthenadjustpolicyduringthecourseoftheyeartomaketheactualgrowthrateliewithinthetargetrange.19

WiththeabandonmentofM1targets,theBankfocusedonalistoffactors,includingi,E,andbroadmonetaryaggregates(likeM2andM2+),butnoaggregatewasfoundsuitableasaguideforconductingmonetarypolicy.

Thegoalofmonetarypolicywas

containmentintheshorttermandpricestabilityinthelongtermiwastheoperatingtargetandEwastheintermediatetarget(withtheBankresistinginE,fearingthatdepreciationwouldworsen

)Result:

again(becauseofapersistentfederalbudgetdeficitthatmadeitdifficultfortheBanktocontrolMand).TheBankrespondedbyannouncingearlyin1988thatshort-termissueswouldhenceforthlessguidepolicyandthatPstabilitywouldbetheBank'slong-termobjectiveofmonetarypolicy

TheChecklistApproach:1982-8820

InFebruary1991,theBankandtheministeroffinance“jointly”announcedexplicittargetsfor,withabandof±1%aroundthem.Thetargetswere3%bytheendof1992,fallingto2%bytheendof1995,toremainwithinarangeof1to3%thereafter.The1%to3%targetrangefor

wasrenewedin1995,inearly1998,andagaininMay2001,toapplyuntiltheendof2006Themidpointofthecurrent

targetrange,2%,isregardedasthemostdesirableoutcomeInsettingits

targets,theBankuses

inflationin"coreCPI"whichexcludesvolatilecomponents(suchasfood,energy,andtheeffectofindirecttaxes)Definingthe

targetsintermsofrangesgivestheBanksufficientflexibilitytodealwithsupplyshocksInflationTargeting:1989-Present21InflationRateandInflationTargetsforCanada,1980-200222InternationalConsiderationsGlobalization(thegrowingintegrationandinterdependenceofnationaleconomies)hasalsoaffectedBankofCanadapolicymakinginrecentyears.Globalizationrequiresinternationalpolicycooperation,toimprovethefunctioningofinternationalfinancialmarketsandtheefficiencyofdomesticmonetarypolicy.Internationalcooperationhasbeenencouragedbytheprocessofinternationalpolicycoordination(agreementsamongcountriestoenactpoliciescooperatively)thatledtothePlazaAgreementin1985andtheLouvreAccordin1987.

23ThePlazaAgreementandtheLouvreAccord

ThePlazaAgreementwasreachedatNewYork’sPlazaHotelinSeptemberof1985betweenfinanceministersandtheheadsofcentralbanksfromtheGroupofFive(G-5)---theU.S.,theU.K.,France,WestGermany,andJapan.ItwasagreedtobringdownthevalueoftheU.S.$toaddressU.S.concernsthatthestrongU.S.$wasreducingthecompetitivenessofAmericancorporations.By1987theU.S.$hadindeed

byabout35%relativetoothercurrencies.Atthispointtoaddressconcernsoverthesignificant

intheU.S.$,policymakersfromtheG-5plusCanadametinFebruary1987attheLouvreMuseuminParisandagreedtostabilizeexchangeratesaroundthethenprevailinglevels.24InflationTargetingFiveElementsPublicannouncementofmedium-term

-targetInstitutionalcommitmenttopricestabilityInformationinclusivestrategyIncreasedtransparencythroughpubliccommunicationIncreasedaccountability25AdvantagesofInflationTargetingAllowsfocusondomesticconsiderationsandenablesmonetarypolicytorespondtoshockstothedomesticeconomyNotdependentonreliablerelationshipbetweenMand

ReadilyunderstoodbythepublicReducepoliticalpressuresfortime-inconsistentpolicymakingPutsgreatstressonmakingpolicytransparentandonregularcommunicationwiththepublicIncreasedaccountabilityofcentralbank(thatcanbeinstrumentalinbuildingpublicsupportforthecentralbank’sindependencePerformancegood:

and

e

,andstayslowinbusinesscycleupturn26DisadvantagesofInflationTargetingDelayedsignallingToomuchrigidityPotentialforincreasedoutputfluctuationsLoweconomicgrowth27DelayedSignallingGiventhattheBankcannoteasilycontrolandalsothe“longandvariablelags”intheeffectsofpolicy,outcomesarerevealedonlyafteralag.Thus,an

targetsendsdelayedsignalstothemarketsaboutthestanceofmonetarypolicy.However,thesignalsprovidedbyotherstrategies(i.e.,M-targetingandE-targeting)arenotverystrongeither.Hence,acasecanbemadethatotherstrategiesarenotsuperiortoinflationtargetingonthesegrounds.28TooMuchRigidityIthasbeenarguedthat-targetingimposesarigidruleonmonetarypolicymakers,limitingtheirdiscretiontorespondtounforseenshocks.Althoughthereareadvantagesfrom“rulelike”policymaking,-targetingaspracticedbytheBankofCanadaisfarfromrigid.TheBankdoesnotfollowsimpleandmechanicalpolicyrulesinconductingmonetarypolicy.Infact,itusesallavailableinformationonanumberofvariablestodeterminewhatpolicyactionsareappropriatetoachievetheinflationtarget.29IncreasedOutputFluctuationsIthasbeenarguedthat-targetingmayleadtotightpolicywhen>*andthusmayleadtolargerYfluctuations.But-targetingdoesnotrequireasolefocuson.Thedecisionofcentralbankstochoosetargetsabovezeroreflectstheconcernthatzeromayhavenegativeeffectsontheeconomy.Forexle,deflationisfearful(becauseitmaypromotefinancialinstability)andtargeting>0makesperiodofdeflationlesslikely.Thisiswhy,*=2%.Moreover,-targetingdoesnotignoretraditionalstabilizationgoals.TheBankofCanadaandall-targetingcentralbankscontinuetoexpresstheirconcernaboutfluctuationsinYandu.Also,theyhavebeenwillingtominimizeYdeclinesbygraduallyloweringmedium-termtargetstowardthelong-rungoal.

30LowEconomicGrowthIthasalsobeenarguedthat-targetingmayleadtolowgrowthinY.Althoughreductionhasbeenassociatedwithbelow-normalYduringthedisinflationaryphases,oncelowhasbeenachieved,Yandemploymentreturntolevelsashighastheywerebefore.Hence,oncelowisachieved,-targetingisnotharmfultotheeconomy,butpromotesrealeconomicgrowth.31TheTaylorRuleHowthetargetiorischosen?

Overnightrate= inflation + equilibriumrealovernightrate+ 1/2(inflation