經(jīng)濟(jì)學(xué)英文教學(xué)課件：KW2_Ch31 Monetary Policy

1、1 of 44chapter: 312009 Worth PublishersMonetary Policy2 of 44WHAT YOU WILL LEARN IN THIS CHAPTERWhat the money demand curve isWhy the liquidity preference model determines the interest rate in the short runHow the Federal Reserve can implement monetary policy moving the interest rate to affect aggre

2、gate outputWhy monetary policy is the main tool for stabilizing the economy3 of 44WHAT YOU WILL LEARN IN THIS CHAPTERHow the behavior of the Federal Reserve compares to that of other central banksWhy economists believe in monetary neutrality that monetary policy affects only the price level, not agg

3、regate output, in the long run4 of 44The Demand for MoneyThe Opportunity Cost of Holding MoneyShort-term interest rates are the interest rates on financial assets that mature within six months or less.Long-term interest rates are interest rates on financial assets that mature a number of years in th

4、e future.5 of 44The Demand for MoneyInterest Rates and the Opportunity Cost ofHolding Money6 of 44FOR INQUIRING MINDSFear and Interest RatesTreasury bills generally pay a slightly lower interest rate than other short-term assets in normal times. In the third week of October 2008, one-month CDs were

5、paying 4.04% interest, but one-month Treasury bills were paying only 0.26%.The reason: fear. A sharp plunge in housing prices had led to big losses at a number of financial institutions, leaving investors nervous about the safety of many non-government assets. On December 10, 2008, in fact, three-mo

6、nth Treasury bills paid 0% interest for a brief period. 7 of 44The Money Demand CurveThe money demand curve shows the relationship between the quantity of money demanded and the interest rate.8 of 44The Money Demand CurveInterest rate, rQuantity of moneyMoney demand curve, MD9 of 44Shifts of the Rea

7、l Money Demand CurveChanges in Aggregate Price LevelChanges in Real GDPChanges in TechnologyChanges in Institutions10 of 44Increases and Decreases in the Demand for MoneyA fall in money demand shifts the money demand curve to the left.A rise in money demandshifts the money demandcurve to the right.1

8、1 of 44 ECONOMICS IN ACTIONA Yen for CashJapan, say financial experts, is still a “cash society.” Why?One reason the Japanese use cash so much is that their institutions never made the switch to heavy reliance on plastic. For complex reasons, Japans retail sector is still dominated by small mom-and-

9、pop stores, which are reluctant to invest in credit card technology. Japans banks have also been slow about pushing transaction technology.But theres another reason the Japanese hold so much cash: theres little opportunity cost to doing so. Short-term interest rates in Japan have been below 1% since

10、 the mid-1990s. It also helps that the Japanese crime rate is quite low, so you are unlikely to have your wallet full of cash stolen.12 of 44Money and Interest RatesAccording to the liquidity preference model of the interest rate, the interest rate is determined by the supply and demand for money.Th

11、e money supply curve shows how the nominal quantity of money supplied varies with the interest rate.13 of 44MrHrErLLEMDMHMLHQuantity of moneyInterestrate, rEquilibrium interest rateMoney supplycurve, MSEquilibriumMoney supplychosen by the FedEquilibrium in the Money Market14 of 441M2E2MS2An increase

12、in the moneysupply . . .r1EMS1MDM1Quantity of moneyInterestrate, rr2. . . leads toa fall in theinterest rate.The Effect of an Increase in the Money Supply on the Interest Rate15 of 44PITFALLSThe Target Versus the MarketA common mistake is to imagine that these changes in the way the Federal Reserve

13、operates alter the way the money market works. Youll sometimes hear people say that the interest rate no longer reflects the supply and demand for money because the Fed sets the interest rate. In fact, the money market works the same way as always: the interest rate is determined by the supply and d

14、emand for money. The only difference is that now the Fed adjusts the supply of money to achieve its target interest rate. Its important not to confuse a change in the Feds operating procedure with a change in the way the economy works.16 of 44Setting the Federal Funds RatePushing the Interest Rate D

15、own to the Target RateThe target federal funds rate is the Federal Reserves desired federal funds rate.Mr1rE1MS1MDM1Quantity of moneyInterestrate, rE22MS2An open-marketpurchase . . .T. . . drives the interest rate down.17 of 44Setting the Federal Funds RatePushing the Interest Rate Up to the Target

16、RateM1r1E1EMDMS1Quantity of moneyInterestrate, r2MS2M 2An open-marketsale . . .rT. . . drives the interest rate up.18 of 44FOR INQUIRING MINDSLong-Term Interest RatesLong-term interest rates dont necessarily move with short-term interest rates. If investors expect short-term interest rates to rise,

17、investors may buy short-term bonds.In practice, long-term interest rates reflect the average expectation in the market about whats going to happen to short-term rates in the future. 19 of 44 ECONOMICS IN ACTIONThe Fed Reverses CourseOn August 7, 2007, the Federal Open Market Committee decided to sta

18、nd pat, making no change in its interest rate policy. On September 18, the Fed cut the target federal funds rate “to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets.” This was only the first of several cuts. Given

19、 the increases in interest rates prior to 2007, this was a reversal of previous policy: previously the Fed had generally been raising rates, not reducing them, out of concern that inflation might become a problem (more on that later in this chapter). Starting in September 2007, fighting the financia

20、l crisis took priority.20 of 44The Fed Reverses Course21 of 44The Fed Moves Interest Rates22 of 44Monetary Policy and Aggregate DemandExpansionary monetary policy is monetary policy that increases aggregate demand.Contractionary monetary policy is monetary policy that reduces aggregate demand.23 of

21、44Monetary Policy and Aggregate DemandAD1AD1AD2AD3Real GDPReal GDPAggregate price level(a) Expansionary Monetary Policy(b) Contractionary Monetary PolicyAggregate price level24 of 44Expansionary and Contractionary Monetary Policy in the Income-Expenditure ModelY1AE1Y1AE1Real GDPPlannedaggregatespend

22、ingReal GDPPlannedaggregatespending(a) Expansionary Monetary Policy(b) Contractionary Monetary Policy45-degree line45-degree lineY2AE2Y2AE225 of 44Expansionary Monetary Policy to Fight a Recessionary Gap26 of 44Contractionary Monetary Policy to Fight an Inflationary Gap27 of 44Monetary Policy and th

23、e Multiplier28 of 44Tracking Monetary Policy29 of 44Tracking Monetary Policy30 of 44Tracking Monetary Policy31 of 44Inflation TargetingInflation targeting occurs when the central bank sets an explicit target for the inflation rate and sets monetary policy in order to hit that target.32 of 44GLOBAL C

24、OMPARISONInflation Targets33 of 44 ECONOMICS IN ACTIONWhat the Fed Wants, the Fed GetsContractionary monetary policy is sometimes used to eliminate inflation that has become embedded in the economy. In this case, the Fed needs to create a recessionary gapnot just eliminate an inflationary gapto wrin

25、g embedded inflation out of the economy.In four out of the five cases that Christina Romer and David Romer examined, the decision to contract the economy was followed, after a modest lag, by a rise in the unemployment rate. On average, they found that the unemployment rate rises by 2 percentage poin

26、ts after the Fed decides that unemployment needs to go up. So, the Fed gets what it wants.34 of 44 ECONOMICS IN ACTIONWhen the Fed Wants a Recession35 of 44Money, Output, and Prices in the Long RunSRSRAS1LRASY1E3E1P1Aggregateprice levelReal GDPPotential outputAS2P3. . . but the eventualrise in nomin

27、al wagesleads to a fall inshort-run aggregatesupply and aggregateoutput falls back topotential output.Y2E2P2AD2An increase in themoney supply reducesthe interest rate andincreases aggregatedemand . . .AD136 of 44Monetary NeutralityIn the long run, changes in the money supply affect the aggregate pri

28、ce level but not real GDP or the interest rate.In fact, there is monetary neutrality: changes in the money supply have no real effect on the economy. So monetary policy is ineffectual in the long run.37 of 44The Long-Run Determination of the Interest RateQuantity of moneyr1MD1MS1M1E3E1Interestrate,

29、rr2E2MS2M2An increase in the moneysupply lowers the interestrate in the short run . . .MD2. . . but in the long run higherprices lead to greater moneydemand, raising the interestrate to its original level.38 of 44 ECONOMICS IN ACTIONInternational Evidence of Monetary NeutralityAll of the major centr

30、al banks try to keep the aggregate price level roughly stable.However, if we look at a longer period and a wider group of countries, we see large differences in the growth of the money supply. Between 1970 and the present, the money supply rose only a few percent per year in some countries.The figur

31、e on the next slide shows the annual percentage increases in the money supply and average annual increases in the aggregate price. The scatter of points clearly lies close to a 45-degree line, showing a more or less proportional relationship between money and the aggregate price level. The data supp

32、ort the concept of monetary neutrality in the long run.39 of 44 ECONOMICS IN ACTIONThe Long-Run Relationship Between Money and Inflation40 of 44SUMMARY1. The money demand curve arises from a trade-off between the opportunity cost of holding money and the liquidity that money provides. The opportunit

33、y cost of holding money depends on short-term interest rates, not long-term interest rates. Changes in the aggregate price level, real GDP, technology, and institutions shift the money demand curve.2. According to the liquidity preference model of the interest rate, the interest rate is determined i

34、n the money market by the money demand curve and the money supply curve. The Federal Reserve can change the interest rate in the short run by shifting the money supply curve. In practice, the Fed uses open-market operations to achieve a target federal funds rate, which other short-term interest rate

35、s generally track.41 of 44SUMMARY3. Expansionary monetary policy reduces the interest rate by increasing the money supply. This increases investment spending and consumer spending, which in turn increases aggregate demand and real GDP in the short run. Contractionary monetary policy raises the interest rate by reducing the money supply. This reduces investment spending and consumer spending, which in turn reduces aggregate demand and real GDP in the short run.42 of 44SUMMA