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Optimal monetary policy in international economics is concerned with the question of how monetary policy should be conducted in interdependent open economies. The classical view holds that international macroeconomic interdependence is only relevant if it affects domestic output gaps and inflation, and monetary policy prescriptions can abstract ...
Macroeconomic policy instruments are macroeconomic quantities that can be directly controlled by an economic policy maker. [1] [2] Instruments can be divided into two subsets: a) monetary policy instruments and b) fiscal policy instruments. Monetary policy is conducted by the central bank of a country (such as the Federal Reserve in the U.S ...
An easy money policy is a monetary policy that increases the money supply usually by lowering interest rates. [1] It occurs when a country's central bank decides to allow new cash flows into the banking system. Since interest rates are lower, it is easier for banks and lenders to loan money, thus likely leading to increased economic growth. [2]
Effective monetary policy complements fiscal policy to support economic stability, dampening the impact of business cycles. Besides conducting monetary policy, the Fed is tasked to promote the stability of the financial system and regulate financial institutions , and to act as lender of last resort .
Monetarism is a school of thought in monetary economics that emphasizes the role of policy-makers in controlling the amount of money in circulation. It gained prominence in the 1970s but was mostly abandoned as a direct guidance to monetary policy during the following decade because of the rise of inflation targeting through movements of the ...
Goodhart's law is an adage often stated as, "When a measure becomes a target, it ceases to be a good measure". [1] It is named after British economist Charles Goodhart, who is credited with expressing the core idea of the adage in a 1975 article on monetary policy in the United Kingdom: [2]
Monetary economics is the branch of economics that studies the different theories of money: it provides a framework for analyzing money and considers its functions ( as medium of exchange, store of value, and unit of account), and it considers how money can gain acceptance purely because of its convenience as a public good. [1]
Market monetarists generally support a "rules-based" policy that they believe would increase economic stability. [7] Market monetarists advocate that the central bank clearly express an NGDP target (such as 5–6 percent annual NGDP growth in ordinary times) and for the central bank to use its policy tools to adjust NGDP until NGDP futures markets predict that the target will be achieved.