宏观经济学课件.ppt
17-1,17-2,17,Policy,Item ItemItemEtc.,17-3,Introduction,In this chapter we examine how policymakers formulate appropriate policy measuresMust consider:TimingUncertaintyHow individuals will respond to specific policiesRole of credibilityMonetary or fiscal policy,or a mixDifferent policy instrumentsDifferent intermediate and ultimate targets,17-4,Lags in the Effects of Policy,Suppose the economy is at full employment:Affected by a negative aggregate demand disturbance reduces the equilibrium level of income below full employmentNo advance warning of disturbance no policy action taken in anticipation of its occurrencePolicymakers must decide:Should they respond to the disturbance?If so,how should they respond?,17-5,Lags in the Effects of Policy,Is the disturbance permanent(or persistent)or temporary?Figure 17-1 illustrates a temporary aggregate demand shockA one period reduction in consumption best policy is to do nothing at allTodays policy actions take time to have an effect would hit economy after back at full-employment level,driving it away from the optimal level,Insert Figure 17-1 here,17-6,Lags in the Effects of Policy,Policymaking is a process:Takes time to recognize and implement a policy actionTakes time for an action to work its way through the economyEach step involves delays or lags:Inside lagsRecognition lagsDecision lagsAction lagsOutside lags,Inside Lags:the time period it takes to undertake a policy actionRecognition Lag:the period that elapses between the time a disturbance occurs and the time the policymakers recognize that action is requiredLag is negative if the disturbance is predicted and appropriate policy actions considered before it occurs(Ex.Increase money supply prior Christmas)Lag is typically positive,17-7,Lags in the Effects of Policy,Policymaking is a process:Takes time to recognize and implement a policy actionTakes time for an action to work its way through the economyEach step involves delays or lags:Inside lagsRecognition lagsDecision lagsAction lagsOutside lags,Inside Lags:the time period it takes to undertake a policy actionDecision Lag:the delay between the recognition of the need for action and the policy decisionDiffers between monetary and fiscal policyFOMC meets regularly to discuss and decide on policy,17-8,Lags in the Effects of Policy,Policymaking is a process:Takes time to recognize and implement a policy actionTakes time for an action to work its way through the economyEach step involves delays or lags:Inside lagsRecognition lagsDecision lagsAction lagsOutside lags,Inside Lags:the time period it takes to undertake a policy actionAction Lag:the lag between the policy decision and its implementationAlso differs for monetary and fiscal policyMonetary policy makers typically act immediatelyFiscal policy actions are less rapid administration must prepare legislation and then get it approved,17-9,Lags in the Effects of Policy,Policymaking is a process:Takes time to recognize and implement a policy actionTakes time for an action to work its way through the economyEach step involves delays or lags:Inside lagsRecognition lagsDecision lagsAction lagsOutside lags,Outside Lags:time it takes a policy measure to work its way through the economyInside lags are discrete,but outside lags are typically distributed lagsOnce a policy action has been taken,its effects on the economy are spread out over timeImmediate impacts may be small,but other effects occur later,17-10,Lags in the Effects of Policy,Figure 17-2 illustrates the dynamic multiplierShows the effects of a once-and-for-all 1 percent increase in the money supply in period zeroImpact is initially very small,but continues to increase over a long period of timeWhy are there outside lags?Monetary policy:initially impacts investment via interest rates,not incomeWhen AD ultimately affected,increase in spending itself produces a series of induced adjustments in output and spending,Insert Figure 17-2 here,17-11,Monetary Versus Fiscal Policy Lags,Fiscal policy directly impacts aggregate demand Affect income more rapidly than monetary policy Shorter outside lags than monetary policy Longer inside lags than monetary policyLong inside lags makes fiscal policy less useful for stabilization and used less frequently to stabilize the economy,It takes time to set the policies in action,and then the policies themselves take time to affect the economy.Further difficulties arise because policymakers cannot be certain about the size and the timing of the effects of policy actions.,17-12,Expectations and Reactions,Government uncertainties about the effects of policies on the economy arise because:Policymakers do not know what expectations firms and consumers haveGovernment does not know the true model of the economyWork with econometric models of the economy in estimating the effects of policy changesAn econometric model is a statistical description of the economy,or some part of it,17-13,Reaction Uncertainties,Suppose the government decides to cut taxes to stimulate a weak economy temporary tax cutHow big of a cut is needed?One possibility:temporary tax cut will not affect long-term income,and thus not long-term spending Large tax cut neededAlternatively:consumers may believe tax cut will last longer than announced,and MPC out of tax cut is larger Smaller tax cut might be sufficient,If the government is wrong about consumers reactions,it could destabilize rather than stabilize the economy.,17-14,Uncertainty and Economic Policy,Policymakers can go wrong in using active stabilization policy due to:Uncertainty about the expectations of firms and consumersDifficulties in forecasting disturbancesLack of knowledge about the true structure of the economyUncertainty about the correct model of the economyUncertainty about the precise values of the parameters within a given model of the economy,Instead of choosing between fiscal and monetary policies when themultipliers are unknown,best to employ a portfolio of policy instruments.DIVERSIFICATION,17-15,Targets,Instruments,and Indicators,Economic variables play a variety of roles in policy discussionsUseful to divide them into targets,instruments,and indicatorsTargets:identified goals of policyUltimate targetsEx.“to achieve zero inflation”Intermediate targetsEx.Targeting money growthUsed to achieve ultimate target,17-16,Targets,Instruments,and Indicators,Economic variables play a variety of roles in policy discussionsUseful to divide them into targets,instruments,and indicatorsInstruments:tools policymakers manipulate directlyEx.An exchange rate targetIndicators:economic variables that signal us as to whether we are getting closer to our desired targetsEx.Increases in interest rates(indicator)sometimes signal that the market anticipates increased future inflation(target)Provide useful feedback policymakers can use to adjust the instruments in order to do a better job of hitting targets,17-17,Rules Versus Discretion,In determining how policymakers should operate,policymakers must answer several questions:Should policymakers actively try to offset shocks?If yes:Should responses be precommitted to specific rules?ORShould policy makers work on a case-by-case basis?,17-18,Rules Versus Discretion,Milton Friedman and others argued:There should be no use of active countercyclical monetary policy Monetary policy should be confined to making the money supply grow at a constant rateFriedman advocated a simple monetary rule Fed does not respond to the condition of the economyPolicies that respond to the current or predicted state of the economy=activist policies/discretionary policiesDebate over whether fiscal and monetary authorities should follow rules or execute discretionary policyActivist rules are possible as well,
