Even if households and businesses are caught off guard by the policy, output rises and unemployment falls only temporarily, until households and businesses adjust their expectations to the new reality.
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The Commission is tasked with providing a thorough and rigorous examination of how, since its creation 100 years ago, Fed policy has affected output, employment, prices and financial stability over time.
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When this policy tries to push economic output beyond its capacity, then inflation emerges.
Long-run growth rates are driven by structural factors not monetary policy, which mainly affects output over the cycle.
"I continue to advocate that the Fed follow a systematic approach that keeps monetary policy focused squarely on inflation and output growth, but especially on inflation, " Plosser said.
Initially it prescribed its usual medicine of tough budget tightening but backed off quickly after recognizing that the policy was accentuating the drastic drop in economic output caused by the battering sharp currency depreciation had delivered to the balance sheets of companies and banks that had borrowed abroad.
We expect rising inflation in H1 2013 as policy easing pushes growth above 8 percent and widens the output gap.
As is searing criticism of Government policy in committee reports - take a look at the output of the Public Accounts Committee or of the Defence Committee.
But he didn't believe that the growth in manufacturing output would tip the Bank of England's Monetary Policy Committee into pushing for a rise in interest rates when they meet next week.
Rahn Curve research shows that government is far too big today, so the goal of fiscal policy should be to restrain the burden of government spending relative to economic output.
Targeting the country's economic output rather than inflation would be a major change to monetary policy, although it is not within the power of the Bank to change its target.
Indeed, as economies become ever more sophisticated, and real economic output ever more difficult to measure accurately, prudent makers of monetary policy will have to monitor an ever-broader set of indicators, equity prices included.
The latter policy will enable industries to respond to price surges and slumps, boosting and channeling output where demand is up and cutting back where it is falling.
His theory asserts that private sector decisions sometimes lead to unexpected downturns in the economic cycle and, therefore, the public sector, including monetary policy actions by the central bank and fiscal spending by the government are needed to stabilize output.
The bold policy actions undertaken by G-20 countries in response to the crisis limited the loss of output and jobs, and launched the global recovery.
In his paper he recommended that the Fed commit to keeping policy easy until the economy reaches a particular target, such as nominal GDP (ie, output unadjusted for inflation) returning to its pre-recession path.
Its food output will fall by a fifth over the next four decades, reckons the International Food Policy Research Institute in Washington.
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But they were written by Britain's Central Policy Review staff about the sorry state of the U.K. auto industry in 1975, when output had fallen by one-quarter in a decade.
Recent declines in output in both Japan and Germany are largely due to inadequate demand caused by overly tight monetary policy, and not to supply-side constraints imposed by the failings of their models.
U.S. retail sales data, industrial output in China and the euro area, the ongoing Spanish banking crisis and possible further monetary policy easing in Japan will all be overshadowed by the Greek elections, said Nomura Securities analysts in a 16 page report on Friday.
Martin Barnes of Bank Credit Analyst, a research firm, points out that the direction of official policy (low rates, quantitative easing, big deficits) looks inflationary but the economic fundamentals (a big output gap, sluggish credit growth) look deflationary.
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