Describe and discuss Chairman Bernanke's views on inflation targeting and transparency in central banking.

Solutions

Expert Solution

As per Bernanke, the inflation targeting can be divided into two components. 1. Framework for making policy choices 2. Strategy to communicate these policies to the public.

He considers inflation targeting as the constrained discretion wherein there is a balance between the flexibility of strict rules and the lack of discipline at policymakers' level. He says that the central bank is free to do its best so as to mobilize the output and the employment in the economy in short run. It can make strong commitments to the public by keeping the inflation low in the economy and as the future prices are dependent on the expectations of future prices plus the monetary policy of changing the money supply works with a lag so the central bank must be in a position to anticipate the future.

By the communication, he says that the central bank must be transperant enough with the public out there. It show announce its targets, dicuss various policy framewrok with the public and must also release the forecasts and the future evaluation of the cpuntry. By communicating transparently with the private sector, it can reduce the uncertainties and thus stabilize the expectations of the private sector.

Together they promote the price stability by stabilizing the expectations and thus help in further stabilizing the output and the employment in the economy.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Suppose a central bank that has an inflation targeting mandate. a. Explain why such a mandate...

Suppose a central bank that has an inflation targeting mandate. a. Explain why such a mandate might lead to monetary policy becoming a stabilizing policy regarding real GDP. [Hint: Use an AD-AS diagram.] b. Given the long and variable lags involved in the full effects of monetary policy being felt throughout the economy, is there any danger that the inflation mandate might turn out to be destabilizing (leading to wider swings in GDP)? Explain.

Suppose that a central bank chairman announces that inflation pressures have ebbed. Would such an announcement...

Suppose that a central bank chairman announces that inflation pressures have ebbed. Would such an announcement lead to an appreciation or depreciation of the domestic currency? Why?

2. A central bank has decided to adopt inflation targeting and is now debating whether to...

2. A central bank has decided to adopt inflation targeting and is now debating whether to target 5 percent inflation or zero inflation. The economy is described 3 by the following Phillips curve: u = 6 − 0.5(π − E π), where u and π are the unemployment rate and inflation rate measured in percentage points. The social cost of unemployment and inflation is described by the following loss function: L = u + 0.025π 2 The central bank would...

Answer the following two questions: Discuss the main assumptions and principles of the inflation targeting monetary...

Answer the following two questions: Discuss the main assumptions and principles of the inflation targeting monetary policy regime. Consider the following Central Bank (CB)’s loss function: ?? = (?? − ?? )2 + ?(?? − ??)2, where, in addition to the variables previously defined in (2), ?? is the inflation target and ? is a sensitivity parameter. Answer the following two questions: Assume that ? = 1, ? > 1 and ? < 1. Discuss the implications for the CB’s...

Which of the following facts supports inflation targeting

To what extent is a central bank necessary? Describe the conditions of banking in the United...

To what extent is a central bank necessary? Describe the conditions of banking in the United States and other countries when a central bank did not exist. Was the monetary system adequate for the commercial needs of the nation, or did the nation inevitably fall into crisis and instability?

Discuss Timberland’s interpretation of radical transparency. Is radical transparency a requirement of sustainability reporting?

There are different views on the causes of inflation. While the standard view is that inflation...

There are different views on the causes of inflation. While the standard view is that inflation is a monetary phenomenon, others emphasise the impact of fiscal policy. a. Explain how inflation is related to the money supply according to the quantity theory of money. Motivate your answer using equations. b. Explain how inflation may be triggered by fiscal considerations, e.g. a desire to increase government spending. Motivate your answer by formulating the government’s budget constraint.

Why did Central Banking originate? Are today's objectives the same as when central banking started?

1. Inflation targeting allows monetary policy to focus on inflation and inflation forecasts except during times...

1. Inflation targeting allows monetary policy to focus on inflation and inflation forecasts except during times of severe recession. A. True B. False 2.The Taylor rule predicted a federal funds rate which was ________ that set when Paul Volcker was chairman of the Fed, and a rate which was ________ that set when Arthur Burns chaired the Fed. A. less than; greater than B. greater than; less than C. less than; equal to D. greater than; equal to 3. Your...

Subjects