Brief Outline of Topics Covered in Lecture 14
Chapter 23 Monetary Policy Theory [probably won't get very far into this chapter, if at all]
Response of monetary policy to shocks
- Response to an AD Shock
- Response to a permanent supply shock
- Response to a temporary supply shock
- Summary
How active should policymakers be?
Is inflation always a monetary phenomenon?
- Causes of inflationary monetary policy
Chapter 24 The Role of Expectations in Monetary Policy [probably won't get this far]
The Lucas Critique of Econometric Policy Evaluation
Rules versus Discretion
- Discretion and Time-Inconsistency
- Types of rules
- The case for rules
- The case for discretion
- Constrained Discretion
The role of credibility and a nominal anchor
Credibility and aggregate demand shocks
- Positive and negative AD shocks
- AS shocks
- Credibility and anti-inflation policy
Video
Extra Reading:
Robert Shiller:
In Search of a Stable Electronic Currency, by Robert Shiller, Commentary, NY Times: ... Bitcoin’s future is very much in doubt. Yet whatever becomes of it, something good can arise from its innovations... I believe that electronic forms of money could give us better pricing, contracting and risk management. ...
Bitcoin has been focused on the wrong classical functions of money, as a medium of exchange and a store of value. ... It would be much better to focus on another classical function: money as a unit of account...
This has already begun to happen. ... For example, since 1967 in Chile, an inflation-indexed unit of account called the unidad de fomento (U.F.), meaning unit of development, has been widely used. Financial exchanges are made in pesos, according to a U.F.-peso rate posted on the website valoruf.cl. One multiplies the U.F. price by the exchange rate to arrive at the amount owed today in pesos. In this way, it is natural and easy to set inflation-indexed prices, and Chile is much more effectively inflation-indexed than other countries are. ...
With electronic software in the background, we can ... move beyond just one new unit of account to a whole system of them...
Bitcoin has been a bubble. But the legacy of the Bitcoin experience should be that we move toward a system of stable economic units of measurement — a system empowered by sophisticated mechanisms of electronic payment.
