How do authorities conduct monetary policy


LORENZETTI, Ambrogio -- Allegory of the Good Government (detail) -- 1338-40 -- Siena

As part of the series of lectures my colleagues and I give to our Master students on Contemporary Economic Challenges, I'm talking tomorrow about Monetary Policy.

How do authorities conduct a monetary policy to achieve price stability? Ensuring economic growth, low unemployment and price stability are the three main objectives that monetary and fiscal authorities target with the help of macroeconomic theory. Controlling inflation is nowadays mostly in the hand of independent monetary authorities: their aim is to allow private agents to engage in economic activities and investments without fear for the future. This lecture reviews the mechanisms presiding over the determination of inflation (with a focus on the role of expectations); the new issues that arose following the 2007 Great Recession (Macro-financial linkages, Zero-lower bound); as well as new toolbox that Central Banks have developed (Quantitative Easing, Forward Guidance...). A special emphasis will be placed on the interplay between empirical experience and economic theory.

Required reading

Goodfriend, Marvin (2007). "How the World Achieved Consensus on Monetary Policy." Journal of Economic Perspectives 21(4): 47-68.

Suggested readings

Chari, V., V., and Patrick J. Kehoe (2006). "Modern Macroeconomics in Practice: How Theory Is Shaping Policy," Journal of Economic Perspectives 20(4). Galí, Jordi, and Mark Gertler (2007). "Macroeconomic Modeling for Monetary Policy Evaluation," Journal of Economic Perspectives 21(4): 25-46. Woodford, Michael (2010). "Financial Intermediation and Macroeconomic Analysis," Journal of Economic Perspectives 24(4): 21-44.


The Economist: The Natural Rate of Unemployment August 2017

The Economist: Controlling Interest September 2013

The Economist: A Healthy Dose of Inflation February 2010


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About the author 
 
Professor of Econometrics & Statistics at
ESSEC Business School
Paris
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