Monetary Policy Analysis: An Undergraduate Toolkit
AbstractWe develop simple diagrams that can be used by undergraduates to understand interest rate setting by policy- makers. We combine an inflation target, Fisher equation, policy reaction function and short and long run aggregate supply analysis to give a depiction of the policy problem. We illustrate the appropriate response by the policy maker to each of a positive shock to demand, a negative supply shock and dislodged inflation expectations. We also illustrate the problems of a zero bound for policy rates within this framework and consider the role of an interest rate rule in offsetting money market perturbations. Some key readings are introduced.
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Bibliographic InfoPaper provided by Department of Economics, University of Kent in its series Studies in Economics with number 0815.
Date of creation: Nov 2008
Date of revision:
Contact details of provider:
Postal: Department of Economics, University of Kent at Canterbury, Canterbury, Kent, CT2 7NP
Phone: +44 (0)1227 764000
Fax: +44 (0)1227 827850
Web page: http://www.ukc.ac.uk/economics/
Find related papers by JEL classification:
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-12-07 (All new papers)
- NEP-CBA-2008-12-07 (Central Banking)
- NEP-MAC-2008-12-07 (Macroeconomics)
- NEP-MON-2008-12-07 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jagjit S. Chadha & Luisa Corrado & Sean Holly, 2008.
"Reconnecting Money to Inflation: The Role of the External Finance Premium,"
Studies in Economics
0816, Department of Economics, University of Kent.
- Chadha, J.S. & Corrado, L. & Holly, S., 2008. "Reconnecting Money to Inflation: The Role of the External Finance Premium," Cambridge Working Papers in Economics 0852, Faculty of Economics, University of Cambridge.
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- Chadha, J.S. & Corrado, L., 2007.
"On the Determinacy of Monetary Policy under Expectational Errors,"
Cambridge Working Papers in Economics
0722, Faculty of Economics, University of Cambridge.
- Jagjit S. Chadha & Luisa Corrado, 2006. "On the Determinacy of Monetary Policy under Expectational Errors," CDMA Working Paper Series 200603, Centre for Dynamic Macroeconomic Analysis, revised 15 Apr 2007.
- Chadha, J.S. & Charles Nolan, 2002.
"Optimal Simple Rules for the Conduct of Monetary and Fiscal Policy,"
Cambridge Working Papers in Economics
0224, Faculty of Economics, University of Cambridge.
- Chadha, Jagjit S. & Nolan, Charles, 2007. "Optimal simple rules for the conduct of monetary and fiscal policy," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 665-689, December.
- Jagjit S. Chadha & Charles Nolan, 2004. "Optimal Simple Rules for the Conduct of Monetary and Fiscal Policy," CDMA Working Paper Series 200406, Centre for Dynamic Macroeconomic Analysis.
- Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February.
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- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
- Lucas, Robert E, Jr, 1996. "Nobel Lecture: Monetary Neutrality," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 661-82, August.
- Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Orthodox and Heterodox Monetary Policies
by Jagjit S. Chadha in Jagjit Chadha's Macro View Point on 2009-01-13 23:36:00
- Deflation - a real problem and a possible cure
by Jagjit S. Chadha in Jagjit Chadha's Macro View Point on 2009-01-08 20:59:00
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