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Macroeconomics 11th Edition by Michael Parkin
Edition 11ISBN: 9780133423884Macroeconomics 11th Edition by Michael Parkin
Edition 11ISBN: 9780133423884 Exercise 14
Economics in the News
Fed at Odds with ECB over Value of Policy Tool
Financial innovation and the spread of U.S. currency throughout the world has broken down relationships between money, inflation, and output growth, making monetary gauges a less useful tool for policy makers, the U.S. Federal Reserve chairman, Ben Bernanke, said. Many other central banks use monetary aggregates as a guide to policy decision, but Bernanke believes reliance on monetary aggregates would be unwise because empirical relationship between U.S. money growth, inflation, and output growth is unstable. Bernanke said that the Fed had "philosophical" and economic differences with the European Central Bank. "There are differences between the United States and Europe in terms of the stability of money demand," Bernanke said. Ultimately, the risk of bad policy arising from a devoted following of money growth led the Fed to downgrade the importance of money measures.
a. Explain how the debate surrounding the quantity theory of money could make "monetary gauges a less useful tool for policy makers."
b. What do Ben Bernanke's statements reveal about his view on the accuracy of the quantity theory of money?
Fed at Odds with ECB over Value of Policy Tool
Financial innovation and the spread of U.S. currency throughout the world has broken down relationships between money, inflation, and output growth, making monetary gauges a less useful tool for policy makers, the U.S. Federal Reserve chairman, Ben Bernanke, said. Many other central banks use monetary aggregates as a guide to policy decision, but Bernanke believes reliance on monetary aggregates would be unwise because empirical relationship between U.S. money growth, inflation, and output growth is unstable. Bernanke said that the Fed had "philosophical" and economic differences with the European Central Bank. "There are differences between the United States and Europe in terms of the stability of money demand," Bernanke said. Ultimately, the risk of bad policy arising from a devoted following of money growth led the Fed to downgrade the importance of money measures.
a. Explain how the debate surrounding the quantity theory of money could make "monetary gauges a less useful tool for policy makers."
b. What do Ben Bernanke's statements reveal about his view on the accuracy of the quantity theory of money?
Explanation
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(a) The critics of the quantity theory o...
Macroeconomics 11th Edition by Michael Parkin
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