Monetary Policy Analysis: An Undergraduate Toolkit

Jagjit Chadha

Studies in Economics from School of Economics, University of Kent

Abstract: We develop simple diagrams that can be used by undergraduates to understand interest rate setting by policy- makers. We combine an inflation target, Fisher equation, policy reaction function and short and long run aggregate supply analysis to give a depiction of the policy problem. We illustrate the appropriate response by the policy maker to each of a positive shock to demand, a negative supply shock and dislodged inflation expectations. We also illustrate the problems of a zero bound for policy rates within this framework and consider the role of an interest rate rule in offsetting money market perturbations. Some key readings are introduced.

Keywords: Interest rate setting; monetary policy; zero-bound; money markets (search for similar items in EconPapers)
JEL-codes: E42 E52 E58 (search for similar items in EconPapers)
Date: 2008-11
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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https://www.kent.ac.uk/economics/repec/0815.pdf (application/pdf)

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Chapter: Monetary Policy Analysis: An Undergraduate Toolkit (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ukc:ukcedp:0815

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