Question

In: Economics

How is the forward looking monetary policy different from its backward looking counterpart? What is the...

How is the forward looking monetary policy different from its backward looking counterpart? What is the 'divine coincidence' and why is it difficult to implement explain  in details?

Solutions

Expert Solution

Forward looking monetary policy refers to policy making strategy targetting specific level of inflation in the future without worrying about historic trend whereas the backward looking policy looks upon the stickiness of the prices (Wages remains high even if there is slowdown/ unemployment) it decides upon the interest rate basis historic inflation trends.

Divine coincidence refers to situation where we need not keep seperate targets for inflation and output and controlling inflation would also control the output gap ( difference between actual and efficient). In general it is difficult to implement since both are independent factor where if one wants to control inflation growth rate slows down and vice versa. so, targetting to control inflation and bringing it down will result in lower growth which is not generally the policy objective. Hence, this is termed as coincidence which is difficult to implement


Related Solutions

What is monetary policy ( be specific) and how is it different from the "lender of...
What is monetary policy ( be specific) and how is it different from the "lender of last resort" function performed by the FR (Federal Reserve)?
In a paragraph explain " How is China's monetary policy different from the United States' monetary...
In a paragraph explain " How is China's monetary policy different from the United States' monetary policy?" article " China modernizes its monetary policy"
Discuss how does a rule-based monetary policy differ from discretionary monetary policy (that is, monetary policy...
Discuss how does a rule-based monetary policy differ from discretionary monetary policy (that is, monetary policy not based on a rule)? What are some of the arguments for each?
Discuss what monetary policy is. Discuss different instruments of monetary policy. Discuss the impact of expansionary...
Discuss what monetary policy is. Discuss different instruments of monetary policy. Discuss the impact of expansionary and contractionary monetary policy, specifically the change in interest rate and credit availability, and the process by which these changes impact business’s decision making process.
What are three different interest rates that the Fed uses as part of its monetary policy...
What are three different interest rates that the Fed uses as part of its monetary policy operations today?
1. What is the difference between forward integration and backward integration? a. Backward integration involves distribution...
1. What is the difference between forward integration and backward integration? a. Backward integration involves distribution and sale; forward integration involves raw material production. b. Both involve adding value after a product is manufactured. c. Forward integration involves distribution and sale; backward integration involves raw material production. d. Backward integration involves stripping value at each stage; forward integration adds value at each stage of the chain. 2. A fitness activity tracker company has the largest market share out of its...
what is the difference between a backward and a forward linkage with respect to railroads?
what is the difference between a backward and a forward linkage with respect to railroads?
How does the Federal Reserve implement its monetary policy; what tools are at its disposal, and...
How does the Federal Reserve implement its monetary policy; what tools are at its disposal, and how can those tools be utilized? Not less than 250 words and please include references.
What is Monetary Policy? Who can make and control monetary policies? How does monetary policy impact...
What is Monetary Policy? Who can make and control monetary policies? How does monetary policy impact AD? How does monetary policy impact AS?
Monetary policy a) Why do we need monetary policy and what is its purpose? (10 marks)...
Monetary policy a) Why do we need monetary policy and what is its purpose? b) What are the main transmission channels by which monetary policy achieves its objectives?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT