l    Stresses transparency and accountability

l    Disadvantages

l    Delayed signaling

l    Too much rigidity

l    Potential for increased output fluctuations

l    Low economic growth during disinflation

4.Monetary Policy with an Implicit Nominal Anchor

There is no explicit nominal anchor in the form of an overriding concern for the Fed.

Forward looking behavior and periodic “preemptive strikes”

The goal is to prevent inflation from getting started.

l    Advantages

l    Uses many sources of information

l    Avoids time-inconsistency problem

l    Disadvantages

l    Lack of transparency and accountability

l    Strong dependence on the preferences, skills, and trustworthiness of individuals in charge

l    Inconsistent with democratic principles

5. Tactics: Choosing the Policy Instrument

l    Tools

l    Open market operation

l    Reserve requirements

l    Discount rate

l    Policy instrument (operating instrument)

l    Reserve aggregates

l    Interest rates

l    May be linked to an intermediate target

l    Interest-rate and aggregate targets are incompatible (must chose one or the other).

6.Linkages Between Central Bank Tools, Policy Instruments, Intermediate Targets, and Goals of Monetary Policy(中间目标是超级重点，死活都要背下来)

Chapter19:The Demand for Money

1.    Velocity of Money and The Equation of Exchange

V=P*Y/M

M*V=P*Y

2.Quantity Theory of Money Demand

SO: Demand for money is determined by:

The level of transactions generated by the level of nominal income PY

The institutions in the economy that affect the way people conduct transactions and thus determine velocity and hence k

3.Keynes’s Liquidity Preference Theory

Transactions motive

Precautionary motive

Speculative motive

Velocity is not constant:

4. Friedman’s Modern Quantity Theory of Money(记住该公式及其含义)

5. Differences between Keynes’s and Friedman’s Model (cont’d)

l    Friedman

l    Includes alternative assets to money

l    Viewed money and goods as substitutes

l    The expected return on money is not constant; however, rb – rm does stay constant as interest rates rise

l    Interest rates have little effect on the demand for money

l    Friedman (cont’d)

l    The demand for money is stable ?

l    velocity is predictable

l    Money is the primary determinant of aggregate spending

Chapter23：Transmission Mechanisms of Monetary Policy: The Evidence

1.Framework

(1)Structural Model

whether one variable affects another

l    Transmission mechanism

l    The change in the money supply affects interest rates

l    Interest rates affect investment spending

l    Investment spending is a component of aggregate spending (output)

Advantages and Disadvantages

(2)Reduced-Form

l    Analyzes the effect of changes in money supply on aggregate output (spending) to see if there is a high correlation

Advantages and Disadvantages

2. Transmission Mechanisms of Monetary Policy

(1) Asset Price Effects

Traditional interest rate effects

Exchange rate effects on net exports

...

(2)Credit View

Chapter24: Money and Inflation

1.meaning of inflation(死活背下来)

extremely high for a sustained period of time, its rate of money supply growth is also extremely high

l    Money Growth

l    High money growth produces high inflation

l    Fiscal Policy

l    Persistent high inflation cannot be driven by fiscal policy alone

l    Supply Shocks

l    Supply-side phenomena cannot be the source of persistent high inflation

l    Conclusion: always a monetary phenomenon

2. Origins of Inflationary Monetary Policy

l    Cost-push inflation

l    Cannot occur without monetary authorities pursuing an accommodating policy

l    Demand-pull inflation

l    Budget deficits

l    Can be the source only if the deficit is persistent and is financed by creating money rather than by issuing bonds

l    Two underlying reasons

l    Adherence of policymakers to a high employment target

l    Presence of persistent government budget deficits

3. The Discretionary (Activist)/ Nondiscretionary (Nonactivist) Policy Debate

（1）Advocates of discretionary policy：

regard the self-correcting mechanism as slow

Policy lags slow activist policy

（2）Advocates of nondiscretionary policy:

believe government should not get involved

Discretionary policy produces volatility in both the price level and output