Tepper School of Business
Monetary Policy in the U.S. and Abroad
Monetary Policy in the U.S. and Abroad
Economics 45-853
Mini 4, Spring 2007
Professor Marvin Goodfriend
marvingd@andrew.cmu.edu
Prerequisites: Finance 45-710 and Managerial Economics 45-750
Grading: Problem set and team briefing (30% each), and final exam (40%)
Reading Materials:
i) Articles in course packet
ii) Answers to problem set
iii) Monetary policy news in the Wall Street Journal
Websites: Bank for International Settlements—World Central Bank Address Book
http://www.bis.org/cbhub/aboutcbhub.htm
COURSE OUTLINE
I) The Core Real Business Cycle Model ([1],weeks 1-2)
1) Household consumption
2) Household labor supply
3) Firms, employment, and output
4) The real interest rate: coordinating demand with supply
II) Monetary Policy, Employment, Inflation ([1], weeks 1-2)
1) Firm pricing practices, inflation, and the markup
2) Employment fluctuations and the markup
3) Interest rate policy, credibility, and inflation scares
4) Fluctuations and stabilization policy
5) Welfare maximizing monetary policy
III) The New Synthesis Model in Practice ([2], week 2)
1) The Principle of Price Stability
2) Deflationary Shocks
3) Central Bank Communication
IV) Monetary Policy Operations ([3], pp. 3-7, week 3)
1) Central bank provision of bank reserves
2) Loan demand
3) Banking system balance sheet constraint
4) Money multiplier (bank reserve demand)
5) Policy instrument: bank reserves vs interbank interest rate
V) US Macroeconomic Performance Since 1979 (weeks 3-4)
1) The inflation scare problem [4]
2) The Volcker disinflation [5]
3) The Greenspan era [6]
4) The case for inflation targeting in the US [7]
VI) Monetary Policy Abroad (weeks 5-7)
1) The Eurosystem: Monetary policy in a System of Central Banks [8]
2) Norges Bank: Monetary policy in a small open economy [9]
3) The People’s Bank of China: Designing monetary policy for a large emerging market economy [10]
4) The Bank of Japan: Extreme asset price movements [11]
TEAM BRIEFINGS (Team briefings on monetary policy of selected central banks from around the world ([Various central bank websites], week 7.
READINGS
[1] “Monetary Policy in the New Neoclassical Synthesis: A Primer,”International Finance (Summer 2002)
[2] “Sustaining Price Stability,” with Al Broaddus, Federal Reserve Bank of Richmond Economic Quarterly, (Summer 2004
[3] “A Model of Money Stock Determination with Loan Demand and a Banking System Balance Sheet Constraint,” Federal Reserve Bank of Richmond Economic Review (Jan/Feb 1982)
[4] “Interest Rate Policy and the Inflation Scare Problem: 1979-1992,” Federal Reserve Bank of Richmond Economic Quarterly (Winter 1993)
[5] “The Incredible Volcker Disinflation,” with Robert King, Journal of Monetary Economics (July 2005)
[6] “The Phases of US Monetary Policy: 1987-2001,” in Paul Mizen, ed., Central Banking, Monetary Theory and Practice: Essays in Honor of Charles Goodhart, Volume 1, Edward Elgar Press (2003)
[7] “Inflation Targeting in the United States?” in Ben Bernanke and Michael Woodford, eds., The Inflation Targeting Debate, National Bureau of Economic Research, University of Chicago Press (2005)
[8] “The Role of a Regional Central Bank in a System of Central Banks,” in Bennett McCallum and Charles Plosser, eds., Carnegie Rochester Conference Series on Public Policy, Vol 51 (1999)
[9] Norges Bank Watch 2007: An Independent Review of Monetary Policymaking in Norway, with Knut Anton Mork and Ulf Soderstrom, Center for Monetary Economics, BI Norwegian School of Management, Oslo, Norway (March 2007) (password protected)
[10] “A Framework for Independent Monetary Policy in China,” with Eswar Prasad, CESifo Economic Studies (January 2007); also International Monetary Fund, Working Paper (May 2006)
[11] “Interest Rate Policy Should Not React Directly to Asset Prices,” in William Hunter, George Kaufman, and Michael Pomerleano, eds., Asset Price Bubbles: Implications for Monetary, Regulatory, and International Policies, MIT Press (2003)
