Canale, Rosaria Rita (2008): Equilibrium income and monetary policy strategy: teaching macroeconomics with the MP curve.
Download (235kB) | Preview
The aim of the paper is to present a derivation of a simple tool describing monetary policy behaviour, useful to teach macroeconomic policies in open economies, the MP curve. The objective is to overcome the limits of the standard IS-LM model and underline the importance of the central bank strategy in influencing output and employment. We demonstrate that if the main policy instrument is the interest rate, the monetary policy authorities have very great influence in determining macroeconomic equilibrium. In fact the monetary policy strategy - of which the MP curve is the representation - is able to create, once given the dynamic supply curve and the IS curve, different levels of income in accordance to the inflation target, or different levels of inflation in accordance to the income target. Furthermore - because the nature and form of the MP curve depends both on constraints and targets the monetary policy considers and they might not be correctly interpreted - the central bank could assume a misleading behaviour, guiding the economic system toward a level of activity, not consistent with full employment and price stability
|Item Type:||MPRA Paper|
|Original Title:||Equilibrium income and monetary policy strategy: teaching macroeconomics with the MP curve|
|Keywords:||teaching intermidiate macroeconomics, monetary policy strategy, equilibrium income,|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
A - General Economics and Teaching > A2 - Economic Education and Teaching of Economics > A20 - General
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E61 - Policy Objectives ; Policy Designs and Consistency ; Policy Coordination
|Depositing User:||Rosaria Rita Canale|
|Date Deposited:||18. Dec 2008 19:00|
|Last Modified:||12. Feb 2013 16:07|
Bofinger P. (2008) "Teaching New Keynesian Open Economy Macroeconomics at the Intermediate Level ", The Journal of Economic Education, in press.
Bofinger P., Mayer E. and Wollmershäuser T., (2006) "The BMW Model: A New Framework for Teaching Monetary Economics", The Journal of Economic Education, Vol. 37(1), pp.98-117, 2006.
Bofinger P., Mayer E. Wollmershäuser T. (2002) The BMW model: simple macroeconomics for closed and open economies –a requiem for the IS/LM-AS/AD and the Mundell-Fleming model, Wurzburg Economic Papers, n.35
Colander D. (1995), “The Stories We Tell: A Reconsideration of AS /AD Analysis”, Journal of Economic Perspectives- Vo. 9, n.3-pp. 169-188
Kaldor (1986), The Scourge of Monetarism, Oxford University Press.
Romer D. (2005), Short run fluctuations, University of California, Berkeley, Copyright 2005 by David Romer
Romer D. (2000) “Keynesian Macroeconomics without the LM Curve”, Journal of Economic Perspectives—Volume 14, Number 2—Spring 2000—Pages 149–169
Taylor J. B. (1993), 'Discretion versus policy rules in practice'. Carnegie-Rochester Conference Series on Public Policy 39, pp. 195-214.
Walsh (2002) Teaching Inflation Targeting: An Analysis for Intermediate Macro, Journal of Economic Education, Fall.