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13 Cards in this Set
- Front
- Back
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Discretion |
Decisions made in the moment, with no regard to future actions |
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Monetarists |
Followers of constant money growth rate rule by Milton Friedman |
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Constant money growth rate rule |
Non Activist |
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Activist rules |
Taylor rule, rules that react to level of output. |
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Case for rules |
Prevents time inconsistency problem by forcing commitment Policymakers and politicians cannot be trusted (they are bad during the great depression) |
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Political business cycle |
Expansionary policies right before election that cause inflation later |
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Case for discretion |
Too rigid, can't deal with every situation Doesn't incorporate judgment Unknown true model of economy Doesn't evolve with changing coefficients of the model |
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Nominal anchor |
Provides credibility by forcing commitment to the anchor or face scrutiny. It also anchors inflation expectations therefore lowering fluctuations |
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Increasing credibility |
Keeping inflation under control Inflation targeting Exchange rate targeting GDP targeting Independence from political process Appointment of conservative central bankers |
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Consumer durable expenditure |
Automobile and housing are also considered investment |
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Real effects stock |
Nominal effects cash flow |
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Asymmetric information theory |
Supports the existence of credit channels |
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Tobin's q |
q is the market value of firms divided by the replacement cost of capital |
