--%>
Assignment Help - homework help

Guideline for monetary policy using Taylor Rule

Question: In using the Taylor Rule as a guideline for monetary policy, what are the pros and cons of using forecasted values of inflation and output rather than observed values of these variables?

Answer:

Taylor rule stipulates that the Fed should increase the nominal interest rates more than the difference between actual and targeted rate if the inflation rate in a period is higher than the targeted rate. However, it uses the forecasted value of output and inflation rather than the actual values. This brings a lack of transparency to the policy recommendations. However, these forecast are not always reliable, and more often than not, it brings ambiguity to the policy implications. Actual data, on the other hand, is more reliable to use. But the forecasted values are forward looking and in that sense it is supposed to predict better results than the actual data, which cannot be available for a period ahead.

 

 

   Related Questions in Business Economics

  • Q : Why do governments enact trade barriers

    Why do governments enact trade barriers?

    		•
  • Q : Which type of maximization required in

    Productive (technical) efficiency needs maximization of the: (i) opportunity cost of a specified value of output. (ii) resources used to produce a specified value of output. (iii) value of output produced for a given total cost. (iv) satisfaction atta

    		•
  • Q : Describe two kinds of efficiency Full

    Describe two kinds of efficiency Full production imply?

    		•
  • Q : Best alternatives while choices are made

    Opportunity costs, which are the values of the: (i) monetary costs of goods and services. (ii) best alternatives sacrificed while choices are made. (iii) minimal budgets of families upon welfare. (iv) hidden charges passed upon to consumers. (v) exorb

    		•
  • Q : What are the criteria of issuing stocks

    What are the criteria of issuing stocks or bonds?

    		•
  • Q : Favor laissez- faire economic policies

    Favor laissez- faire economic policies tended by Adam Smith, who also: (w) saw the requirement for several state intervention. (x) believed there were no conditions in which the government must intervene. (y) supported most government

    		•
  • Q : Speculators activities over the long-run

    Over the long-run the speculators activities are tend to: (1) decrease the volatility of prices. (2) attract legal attention and result in imprisonment. (3) increase the level and volatility of prices both. (4) yield tremendous profits and raise costs

    		•
  • Q : Perfectly competitive market and its

    Which of the given is not a characteristic of a perfectly competitive market structure: w) there are a very huge number of firms which are small compared to the market. x) All firms sell the same products. y) There are no restrictions to entry through

    		•
  • Q : Illustrate the Comparative advantage

    Illustrate the Comparative advantage and terms of trade?

    		•
  • Q : What do you mean by Supply What do you

    What do you mean by Supply?

    		•