Scribd
Upload
11 views

Macro Cheat Sheet 2

o

Uploaded by

shlokavasudeva02
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
11 views

Macro Cheat Sheet 2

o

Uploaded by

shlokavasudeva02
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

2.

Exchange rate target: CB commits to keeping price of currency, nominal exchange


rate, fixed relative to other currencies. Implicitly, they are choosing exchange rate.
3. Money targeting: set path of MS(bitcoin) 4. Commodity: Gold Standard.
CENTRAL BANK: INFLATION AND NOMINAL EXCHANGE RATE: By
setting inflation (or path of money supply) central banks implicitly choose all other
nominal variables - nominal exchange rate, nominal interest rate. Depn positive
correlation with Inflation. ** Many currencies peg their exchange rates (fixed
exchange rates). *Inflation targets typically low (2-3%) but above 0. Why not
below 0? 1. Allows for missing qlt improvements (overstated measured inflation) 2.
Raises Normal Nominal Interest rate (r+inf)- so more room to cut in recessions 3.
Helps avoid negative inflation or deflation. * Fast growing economies require higher
inflation targets - inflation target depends on idependence and credibility of central
bank - low and stable. LONG RUN EQUILIBRIUM: Inflation adjusts in the long run.
Continue with IS/LM equations. How to use the Model: 1. Short run eq: intersection of
IS, LM and Rf as short ter demand determines outcome. 2. Long run: IS/LM/aggregate
supply curev. 3. Adjustment to Long run equilibrium: price changes via LM shift to
equilibrium. Long run aggregate supply curve shifts to the right when potential output
increases. 1. Productivity increases 2. Factors of prod increase 3. Other macro
3 Cases: always mention recession/boom belowpot - and then shift LM curve

Monetary Policy in short run costs.


Getting Central Bank Nominal Interest
Rates. Conduct Policy by changing
interest rates. Reasonable/Baseline level
- Normal or Neutral Nominal Interest
Rate = Reasonable real return (r*) +
Inflation - in normal conditions, Adjust
for cylical conditions- raise interest rat-
inflation above target.
TAYLOR RULE:

also shows opp relation between real int rate and inflation - period of great Moderation
until 2008 - negative territory. ** Always remember return to potential/ natural rate
of unemployment in the long run.

You might also like