Monetary Theory and Policy参考.ppt

Integrating Monetary and Fiscal Policies Monetizing the debt Definition---financing the national debt by printing new money or through open market operation, which cause inflation due to a large money supply Should the Fed help finance a federal budget deficit created by fiscal policy? Fed may prefer not to monetize the debt See Exhibit 5.13 (P130) Integrating Monetary and Fiscal Policies Market assessment of integrated policies Financial markets assess both fiscal and monetary policy Markets monitor a wide range of information and data Forecast how loanable funds supply and demand will change See exhibit 5.14 3.5 Global Effects on Monetary Policy Impact on the U.S. dollar Value of the dollar relative to other currencies can affect inflation A weak dollar stimulates U.S. exports, discourages imports and stimulates the economy Fed less likely to stimulate the economy if the dollar is weak Strong dollar Stimulates imports and dampens economic growth Fed is more likely to use stimulative policy Global Effects on Monetary Policy Transmission of interest rates International flow of funds affected by Fed policy Global capital and money markets are integrated Capital flows to highest real, after-tax, exchange-rate adjusted rate of return Financial integration improves with Decreased governmental regulation in markets Decreased transaction costs Improved financial technology Deficits or surpluses in the U.S. have global implications (global crowding out) 5.15 Global Effects on Monetary Policy Fed policy during the Asian crisis Fed realizes the global economy is integrated U.S. economic conditions affect other countries Other countries economic conditions affect the U.S. Fed reaction to Asian crisis shows possible complications that result from economic integration Forecasting Money Supply Watch weekly federal reserve data releases Observe changes with announced fed ranges of money growth Markets attempt to estimate changes in monetary policy direction and . . . Anticipat