Bài giảng MicroEconomics - Chapter 036 Current Issues in Macro Theory and Policy

Current Issues in Macro Theory and PolicyChapter 36 Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinChapter ObjectivesAlternative perspectives on macroeconomic instabilityEquation of exchange and monetarismNew classical economists and self-correction Rules vs. discretion in conducting stabilization policy36-2Causes of Macro InstabilityMainstream viewHeld by most economistsPrice stickinessUnexpected demand shocksVariable investment spendingUnexpected supply shocks36-3Monetarist viewGovernment interference is the problemEquation of exchange MV = PQStable velocityMonetary causes of instabilityInappropriate monetary policyCauses of Macro Instability36-4Real-business-cycle viewShifts in long-run aggregate supplyPrice LevelP1Real Domestic OutputQ2Q1AD1AD2ASLR1ASLR2Causes of Macro Instability36-5Coordination failuresFourth modern viewLimited informationExpectations and self-fulfilling prophecyUnemployment equilibriumInflation equilibriumCauses of Macro Instability36-6Self-CorrectionNew classical view Rational expectations theoryMonetaristsAutomatic correction will occurSpeed of adjustmentUnanticipated price-level changesFully anticipated price-level changes36-7New Classical View of Self-CorrectionAD2AD1AS1AS2ASLRPrice LevelP1P2P3Real Domestic OutputQ1Q2abcSelf-Correction36-8New Classical View of Self-CorrectionAD3AD1AS1AS3ASLRPrice LevelP1P4P5Real Domestic OutputQ1Q4Q3aedfSelf-Correction36-9Mainstream viewDownward wage inflexibilityEfficiency wage theoryGreater work effortLower supervision costsReduced job turnoverInsider-outsider relationshipsSelf-Correction36-10Rules or Discretion?In support of policy rulesReduce macro instabilityMonetary ruleShift AD to keep up with ASPrice stability achievedInflation targetingBalanced budget36-11Rationale for Monetary RulePrice LevelP1Real Domestic Output, GDPQ1Q2P2ASLR1ASLR2AD1AD236-12Rules or Discretion?In defense of discretionary stabilization policyDiscretionary monetary policyVelocity is not stableDiscretionary fiscal policyUseful during recessionIncreased macro stability36-13The Taylor RuleRules: passive monetary policyDiscretion: active monetary policyHybrid policy rule to dictate Fed actionsPolicy responds to changes in real GDP and inflationUse the interest rateFed explains deviations from the ruleIncrease Fed credibility and reduce uncertainty36-14Key Termsmonetarismequation of exchangevelocityreal-business-cycle theorycoordination failuresrational expectations theorynew classical economicsTaylor ruleprice-level surprisesefficiency wageinsider-outsider theorymonetary ruleinflation targeting36-15Next Chapter PreviewInternational Trade36-16