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Chapter 25: Q.21 (page 676)

What traits characterize a 鈥渃onservative鈥� central banker?

Short Answer

Expert verified

Committed to maintaining low and steady inflation is the trait of conservative central banker.

Step by step solution

01

Content Introduction

The stability bias of discretionary monetary policy is solved by a conservative central banker who places more emphasis on inflation stabilization than the social planner. The welfare costs of departing from the ideal level of monetary conservatism are asymmetric, as shown in this note.

02

Content Explanation

A central banker who is conservative is someone who has a great hatred for inflation. In other words, a conservative central banker would be appointed to project a strong anti-inflation stance and be devoted to maintaining low and stable inflation.

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Most popular questions from this chapter

Suppose country A has a central bank with full credibility, and country B has a central bank with no credibility. How does the credibility of each country's central bank affect the speed of adjustment of the aggregate supply curve to policy announcements? How does this result affect output stability? Use an aggregate supply and demand diagram to demonstrate.

How is constrained discretion different from discretion in monetary policy? How are the outcomes of these policies likely to differ?

Go to the St. Louis Federal Reserve FRED database, and find data on the personal consumption expenditure price index (PCECTPI). Convert the units setting to "Percent Change from Year Ago, " and download the data. Beginning in January 2012, the Fed formally announced a 2% inflation goal over the "longer-term."

a. Calculate the average inflation rate over the last four and the last eight quarters of data available. How does it compare to the2% inflation goal?

b. What, if anything, does your answer to part (a) imply about Federal Reserve credibility?

What does the Lucas critique state about the limitations of our current understanding of the way in which the economy works?

In general, how does credibility (or lack thereof) affect the aggregate supply curve?
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