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Monetary Policy Analysis: An Undergraduate Toolkit

In: Macroeconomic Theory and Macroeconomic Pedagogy

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  • Jagjit S. Chadha

Abstract

The nuts and bolts of setting monetary policy are often hard to get across to students. There are a number of key hurdles to overcome. First, the conceptual idea of how setting interest rates may (or may not) act to stabilize an economy comprising many households, firms, financial institutions and a significant government sector. Secondly, there are a host of institutional details to convey such as the framework for monetary policy, the relationship between the Finance Ministry and the central bank and what might be the ultimate objectives of stabilization policy. Thirdly, the theory of monetary policy is itself really developing into a branch of ‘robust’ control theory and so is subject to severe technical barriers at the frontier.3 And finally, there is the aspect of the real data: how do we convey the idea that the observed economy is not some clearly identifiable mass but a construct based upon a myriad of observations or surveys announced on a daily basis? The mixture of institutional detail, high theory, data and, at times, low politics makes monetary policy courses a daunting mix for instructor and student alike.

Suggested Citation

  • Jagjit S. Chadha, 2009. "Monetary Policy Analysis: An Undergraduate Toolkit," Palgrave Macmillan Books, in: Giuseppe Fontana & Mark Setterfield (ed.), Macroeconomic Theory and Macroeconomic Pedagogy, chapter 3, pages 55-75, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-29166-9_4
    DOI: 10.1007/978-0-230-29166-9_4
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    References listed on IDEAS

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    1. Feldstein, Martin S, 1979. "The Welfare Cost of Permanent Inflation and Optimal Short-Run Economic Policy," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 749-768, August.
    2. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February.
    3. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
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    5. A. W. Phillips, 1958. "The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957," Economica, London School of Economics and Political Science, vol. 25(100), pages 283-299, November.
    6. Jagjit S. Chadha & Luisa Corrado & Sean Holly, 2008. "Reconnecting Money to Inflation: The Role of the External Finance Premium," Studies in Economics 0816, School of Economics, University of Kent.
    7. Bennett T. McCallum, 2001. "Monetary policy analysis in models without money," Review, Federal Reserve Bank of St. Louis, vol. 83(Jul), pages 145-164.
    8. Chadha, Jagjit S. & Nolan, Charles, 2007. "Optimal simple rules for the conduct of monetary and fiscal policy," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 665-689, December.
    9. Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April.
    10. Fuente,Angel de la, 2000. "Mathematical Methods and Models for Economists," Cambridge Books, Cambridge University Press, number 9780521585293, October.
    11. Lucas, Robert E, Jr, 1996. "Nobel Lecture: Monetary Neutrality," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 661-682, August.
    12. Chadha, J.S. & Corrado, L., 2007. "On the Determinacy of Monetary Policy under Expectational Errors," Cambridge Working Papers in Economics 0722, Faculty of Economics, University of Cambridge.
    13. Alan Greenspan, 2004. "Risk and Uncertainty in Monetary Policy," American Economic Review, American Economic Association, vol. 94(2), pages 33-40, May.
    14. Jagjit S. Chadha & Luisa Corrado, 2006. "On the Determinacy of Monetary Policy under Expectational Errors," CDMA Working Paper Series 200603, Centre for Dynamic Macroeconomic Analysis, revised 15 Apr 2007.
    15. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Deflation - a real problem and a possible cure
      by Jagjit S. Chadha in Jagjit Chadha's Macro View Point on 2009-01-09 02:59:00
    2. Orthodox and Heterodox Monetary Policies
      by Jagjit S. Chadha in Jagjit Chadha's Macro View Point on 2009-01-14 05:36:00

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    Cited by:

    1. Imamudin Yuliadi, 2020. "The Implementation of a Dual Monetary System in Indonesia," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(3), pages 28-39.

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    More about this item

    Keywords

    Interest Rate; Monetary Policy; Central Bank; Real Interest Rate; Real Rate;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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