宏觀經(jīng)濟(jì)學(xué)英文課件：lecture9 Stabilization Policy

1、LECTURE 9Stabilization PolicyQuestion 1:slide 1U.S. Real GDP Growth Rate, 1960:1-2001:4slide 2Arguments for active policy Recessions cause economic hardship for millions of people. The Employment Act of 1946: “it is the continuing policy and responsibility of the Federal Government topromote full em

2、ployment and production.” The model of aggregate demand and supply (Chapters 9-13) shows how fiscal and monetary policy can respond to shocks and stabilize the economy.slide 3Change in unemployment during recessionspeaktroughincrease in no. of unemployed persons (millions)July 1953May 19542.11Aug 19

3、57April 19582.27April 1960February 19611.21December 1969November 19702.01November 1973March 19753.58January 1980July 19801.68July 1981November 19824.08July 1990March 19911.67slide 4Arguments against active policy1.Long & variable lags inside lag: the time between the shock and the policy response ta

4、kes time to recognize shock takes time to implement policy, especially fiscal policyoutside lag: the time it takes for policy to affect economyslide 5If conditions change before policys impact is felt, then policy may end up destabilizing the economy.Automatic stabilizers definition: policies that s

5、timulate or depress the economy when necessary without any deliberate policy change. They are designed to reduce the lags associated with stabilization policy. Examples: income tax unemployment insurance welfareslide 6Forecasting the macroeconomyBecause policies act with lags, policymakers must pred

6、ict future conditions.Ways to generate forecasts:Leading economic indicators: data series that fluctuate in advance of the economyMacroeconometric models:Large-scale models with estimated parameters that can be used to forecast the response of endogenous variables to shocks and policiesslide 7LEIAve

7、rage workweek of production workers in manufacturingAverage initial weekly claims for unemployment insuranceNew orders for consumer goods and materialsNew orders for nondefense capital goodsVendor performanceNew building permits issuedIndex of stock pricesM2Interest rate spreadIndex of consumer expe

8、ctationsslide 8The LEI index and Real GDP, 1960sslide 9source of LEI data:The Conference BoardThe Index of Leading Economic Indicators includes 10 data series (see FYI box on p.383 ).-10-505101520196019621964196619681970annual percentage changeLeading Economic Indicators Real GDP The LEI index and R

9、eal GDP, 1970sslide 10source of LEI data:The Conference Board-20-15-10-505101520197019721974197619781980annual percentage changeLeading Economic Indicators Real GDP The LEI index and Real GDP, 1980sslide 11source of LEI data:The Conference Board-20-15-10-505101520198019821984198619881990annual perce

10、ntage changeLeading Economic Indicators Real GDP The LEI index and Real GDP, 1990sslide 12source of LEI data:The Conference Board-15-10-50510151990199219941996199820002002annual percentage changeLeading Economic Indicators Real GDP Mistakes Forecasting the Recession of 1982slide 13YearUnemploymentra

11、te (percent)1986Actual1983:41983:21982:41982:21981:41981:219851984198319821981198011.010.510.09.59.08.58.07.57.06.56.0Forecasting the macroeconomyBecause policies act with lags, policymakers must predict future conditions.slide 14The Lucas Critique Due to Robert Lucaswon Nobel Prize in 1995 for “rat

12、ional expectations” Forecasting the effects of policy changes has often been done using models estimated with historical data. Lucas pointed out that such predictions would not be valid if the policy change alters expectations in a way that changes the fundamental relationships between variables.sli

13、de 15An example of the Lucas Critique Prediction (based on past experience):an increase in the money growth rate will reduce unemployment The Lucas Critique points out that increasing the money growth rate may raise expected inflation, in which case unemployment would not necessarily fall. slide 16T

14、he Jurys OutLooking at recent history does not clearly answer Question 1: Its hard to identify shocks in the data, and its hard to tell how things would have been different had actual policies not been used.slide 17Question 2:slide 18Rules and Discretion: basic concepts Policy conducted by rule: Pol

15、icymakers announce in advance how policy will respond in various situations, and commit themselves to following through. Policy conducted by discretion:As events occur and circumstances change, policymakers use their judgment and apply whatever policies seem appropriate at the time.slide 19Arguments

16、 for Rules1.Distrust of policymakers and the political process misinformed politicians politicians interests sometimes not the same as the interests of societyslide 20Arguments for Rules2.The Time Inconsistency of Discretionary Policy def: A scenario in which policymakers have an incentive to renege

17、 on a previously announced policy once others have acted on that announcement. Destroys policymakers credibility, thereby reducing effectiveness of their policies.slide 21Examples of Time-Inconsistent Policiesslide 22Examples of Time-Inconsistent Policiesslide 23Examples of Time-Inconsistent Policie

18、sslide 24Monetary Policy Rules a. Constant money supply growth rate advocated by Monetarists stabilizes aggregate demand only if velocity is stableslide 25Monetary Policy Rules b. Target growth rate of nominal GDP automatically increase money growth whenever nominal GDP grows slower than targeted; d

19、ecrease money growth when nominal GDP growth exceeds target.slide 26a. Constant money supply growth rateMonetary Policy Rules c. Target the inflation rate automatically reduce money growth whenever inflation rises above the target rate. Many countries central banks now practice inflation targeting,

20、but allow themselves a little discretion.slide 27a. Constant money supply growth rateb. Target growth rate of nominal GDPMonetary Policy Rules c. Target the inflation rateslide 28a. Constant money supply growth rateb. Target growth rate of nominal GDPd. The “Taylor Rule”Target Federal Funds rate bas

21、ed on inflation rate gap between actual & full-employment GDPThe Taylor Rulewhere:slide 29 = nominal federal funds rateffi real federal funds rateffffri GDP Gap = 100YYY= the percent by which real GDP is below its natural rate 2 + 0.5(2) 0.5(GDP Gap)ffrThe Taylor Rule If = 2 and output is at its nat

22、ural rate, then monetary policy targets the real Fed Funds rate at 2% (and the nominal rate at 4%). For each one-point increase in , mon. policy is automatically tightened to raise the real Fed Funds rate by 0.5 For each one percentage point that GDP falls below its natural rate, mon. policy automat

23、ically eases to reduce the Fed Funds Rate by 0.5.slide 30 2 + 0.5(2) 0.5(GDP Gap)ffrThe Taylor Rulewhere:slide 31 = nominal federal funds rateffiGDP Gap = 100YYY= the percent by which real GDP is below its natural rate + 2 + 0.5(2) 0.5(GDP Gap)ffiThe Taylor Rule If = 2 and output is at its natural r

24、ate, then monetary policy targets the nominal Fed Funds rate at 4% (and the real FF rate at 2%). For each one-point increase in , mon. policy is automatically tightened to raise the nominal Fed Funds rate by 1.5(and the real FF rate by 0.5) For each one percentage point that GDP falls below its natu

25、ral rate, mon. policy automatically eases to reduce the Fed Funds Rate by 0.5.slide 32 + 2 + 0.5(2) 0.5(GDP Gap)ffiDoes Greenspan follow the Taylor Rule?slide 33The Federal Funds RateActual and Suggested024681012198719901993199619992002PercentActualTaylors ruleCentral Bank Independence A policy rule

26、 announced by Central Bank will work only if the announcement is credible. Credibility depends in part on degree of independence of central bank.slide 34Inflation and Central Bank Independence slide 35Index of central-bank independenceAverage in ation4.543.532.521.510.598765432SpainNew ZealandItalyUnited KingdomDenmarkAustraliaFrance/Norway/SwedenJapanCanadaNetherlandsB