Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/50607
Authors: 
Chadha, Jagjit S.
Year of Publication: 
2008
Series/Report no.: 
School of Economics discussion papers 08,15
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.
Subjects: 
interest rate setting
monetary policy
zero-bound
money markets
JEL: 
E42
E52
E58
Document Type: 
Working Paper

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