Topic 1 - Barro-Gordon Flashcards
What was Freidman’s rule that targeted a constant rate of growth of the money supply?
The k percent rule
Friedman and simmons said that following a rule would eliminate:
The danger of instability and uncertainty of policy
Simmon’s rule targeted a:`
Constant price level in the short run
What does time consistency concern?
The effectiveness of a policy today depends on the credibility of the commitment to implement that policy in the future
In the loss function, b =
importance of unemployment vs inflation
in the Loss function, Pi =
Inflation
What is pi^e?
Inflation expected by the private sector
If monetary authorities announce zero inflation and are not bound by a rule, will the private sector expect the government to cheat?
Yes
What does discretion mean?
The absence of rules
What does disinflation mean?
Realised inflation is below what private sector expects
When an economy is disinflated, unemployment is pushed:
Above its natural rate
The private sector can truthfully believe:
Binding rules
If monetary authorities set inflation = 0 under discretion, this results in:
Disinflation
Short term interest rate is used by central banks as:
The main tool of monetary policy