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monetary policy and inflation
7.630 documents for monetary policy and inflation
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It is pretty much accepted now by economists that monetary policy -- meaning the Federal Reserve's ability to influence interest rates by raising or lowering the borrowing rate offered to banks -- cannot permanently alter the unemployment rate or growth rate of the economy. The Humphrey-Hawkins Act of 1978 explicitly mandated the Federal Reserve to achieve the dual targets of low inflation and maximum employment. A lot of questions have been raised concerning inflation guidelines and flexible targeting. There is not a pressing need to make a decision on guidelines one way or the other. There clearly are many issues regarding guidelines and targeting for researchers, business economists, and policymakers to study and debate. No matter what answers surface, people will learn more about th...
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A number of countries established inflation targets as part of their monetary policy to manage high inflation rates in the 1990s. Although the strategy does not affect price stability, it is an efficient tool for central banks in making use of economic forecasts and information to meet inflation targets. Inflation targeting also provides businesses with an easy access to information to examine whether central banks are able to meet economic expectations. However, further assessment of the technique is needed to determine its value.
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The operational target of monetary policy in Norway is low and stable inflation, with annual consumer price inflation of approximately 2.5% over time. Norges Bank has cut the policy rate considerably in response to the challenges generated by the global crisis. The key policy rate has been reduced by 4 1/2 percentage points since September. Under the swap arrangement, the government has provided banks with access to liquid government has provided banks with access to liquid government paper in exchange for covered bonds. So far, the rise in prices Norway has held up. The year-on-year rise in consumer prices was 3.0% in May this year. An indicator of inflation expectations in financial markets can be derived from developments in the long-term forward rate differential between Norway and ...
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The gap in the German and US economies' response to higher inflation uncertainty is explained in terms of their respective monetary policies. Using 1966-90 sample data and similar estimation methods, it is shown that inflation uncertainty does not lower real output growth in Germany where it is 'lower, less variable and less persistent' than in the US. In addition, it is proven that the US Federal Reserve and Bundesbank took different approaches to inflationary pressures.
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This article analyzes how announced surprises in monetary policy actions and macroeconomic data releases affect the average rate of inflation that economic agents expect to prevail over the 10-year period following the surprise. The analysis also addresses the effect of Federal Reserve communication and surprises in monetary policy actions on perceived inflation risk over this 10-year period. The study shows that surprises in macroeconomic data releases and monetary policy actions indeed affect the expected rate of inflation. Further, there is evidence that surprises in monetary policy actions increase perceived inflation risk, whereas Federal Reserve communication reduces it.
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Since the early 1990s, an increasing number of countries have adopted explicit inflation targets as the defining principle that should guide the conduct of monetary policy. This development is often credited with having brought about substantial reductions in both the level and variability of inflation in the inflation-targeting countries, and is sometimes argued to have improved the stability of the real economy as well. Inflation-forecast targeting, as a systematic decision procedure for the conduct of monetary policy, was developed at central banks like the Reserve Bank of New Zealand, the Bank of Canada, the Bank of England, and the Bank of Sweden on a trial-and-error basis, with little guidance from the academic literature on monetary policy rules. Michael Woodford reviews some of ...
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Many analysts contend that the Federal Reserve under Chairmen Alan Greenspan and Ben Bernanke has conducted monetary policy that focuses on core rather than headline inflation. The main argument in favor of using core inflation to implement monetary policy is that core inflation approximates the permanent or trend component of inflation much better than does headline inflation, the latter being influenced more by transitory movements in food and energy prices. In this article the authors re-examine the short-term dynamics between headline and core measures of inflation over a longer sample period of 1959-2007. The empirical evidence presented here indicates headline and core measures of inflation are co-integrated, suggesting long-run co-movement. In sample periods beginning in the 1960...
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Norges Bank's operational conduct of monetary policy is oriented towards low and stable inflation. The operational target for monetary policy is annual consumer price inflation of approximately 2.5% over time. Monetary policy influences the economy with long and variable lags. Norges Bank sets the interest rate with a view to stabilising inflation at the target within a reasonable time horizon, normally 1-3 years. Norges Bank operates a flexible inflation targeting regime, so that both variability in output and employment and variability in inflation are given weight. As a result of the prospect of low inflation and moderate growth in output and employment, the key rate was reduced by a total of 5.25 percentage points between December 2002 and March 2004.
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As President Obama restores the Jimmy Carter-era solar panels to the executive mansion, Federal Reserve Chair- man Ben S. Bernanke is bringing back Mr. Carter's monetary policy, running the printing presses faster than they've run since lava lamps and disco were in style.
