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4 Cards in this Set
- Front
- Back
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What was Poole's analysis?
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Poole (1970) showed that the stochastic structure of the economy, the nature and relative importance of difference types of disturbances – would determine the optimal ‘instrument’ operating procedure. Resultantly since financial innovation and liberalisation in the 1980s, money market shocks have become more volatile and frequent than goods market shocks. Central banks have opted to keep interest rates constant in the short run.
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What simple variable of the basic IS-LM model in log terms can be used to derive Poole's results
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How does Walsh (2003) adapt Poole (2003) to show how the basic framework can be modified to distinguish between the monetary base and the money supply as a policy instrument?
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What is the objective function?
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The central bank attempts to minimise the variance of output deviations.
Where all variables have been normalised so that the economy’s equilibrium level of output in the absence of shocks in y = 0. Because the CB’s loss function in quadratic in output around the true steady-state value of zero, the problem of time inconsistency will not arise. |
