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Chapter 23

Chapter 23. Monetary Policy, Output, and Inflation in the Short Run. Japanese and U.S. Growth and Interest Rates, 1990–2004. Japanese and U.S. Growth and Interest Rates, 1990–2004. Japanese and U.S. Growth and Interest Rates, 1990–2004. Japanese and U.S. Growth and Interest Rates, 1990–2004.

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Chapter 23

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  1. Chapter 23 Monetary Policy, Output, and Inflation in the Short Run

  2. Japanese and U.S. Growth and Interest Rates, 1990–2004

  3. Japanese and U.S. Growth and Interest Rates, 1990–2004

  4. Japanese and U.S. Growth and Interest Rates, 1990–2004

  5. Japanese and U.S. Growth and Interest Rates, 1990–2004

  6. The Monetary Policy Transmission Mechanism • The Traditional Channels: Interest Rates and Exchange Rates • the traditional channels of monetary policy transmission aren’t very powerful

  7. The Monetary Policy Transmission Mechanism • Asset Price Channels: Investment and Wealth • a fall in the interest rate tends to push stock prices up • A fall in interest rate target it drives the mortgage rate down leading to higher demand for residential housing, driving up the prices of existing homes • Higher asset prices mean increased wealth and higher consumption

  8. The Monetary Policy Transmission Mechanism • Bank Lending and Balance Sheet Channels • By altering the supply of funds to the banking system, policymakers can affect banks' ability and willingness to lend. • an open market purchase has a direct impact on the supply of loans, increasing their availability to those who depend on banks for financing. • as interest rates fall, the supply of loans increases

  9. The Monetary Policy Transmission Mechanism

  10. The Challenges Modern Monetary Policymakers Face Estimating Potential GDP

  11. The Challenges Modern Monetary Policymakers Face

  12. The Challenges Modern Monetary Policymakers Face

  13. The Challenges Modern Monetary Policymakers Face • Deflation and the Zero Nominal Interest Rate Bound • Since nominal interest rates can't fall below zero, this places a significant restriction on what monetary policymakers can do • The most effective way to expand the monetary base when the overnight interest rate has fallen to zero is to shift to targeting longer-term rates.

  14. The Challenges Modern Monetary Policymakers Face • Booms and Busts in Equity and Property Prices • Bubbles that inflate and then burst are particularly damaging, because the wealth effects they create cause consumption to explode and then contract just as rapidly.

  15. The Challenges Modern Monetary Policymakers Face

  16. The Challenges Modern Monetary Policymakers Face • The Evolving Structure of the Financial System • changes in financial structure will change the impact of monetary policy.

  17. The Challenges Modern Monetary Policymakers Face

  18. Chapter 23 End of Chapter

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