tailieunhanh - Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute - Ultra Easy Monetary Policy and the Law of Unintended Consequences*

At this level we need a model with two components and one constraint. The constraint is the ability to take into account the nonlinearities in the ináation and the term structure dynamics, a usual empirical fact in past studies and a possible outcome of the creation of the ECB. The Örst component is intended to identify the long-term perception of monetary policy by private agents. Here we use the long-term ináation target perceived by the public from the observed behaviour of the central bank and the Fisher relationship to link this perception to the corresponding level of nominal interest rate. The second component describes the relationship between the. | Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute Working Paper No. 126 http assets documents institute wpapers 2012 Ultra Easy Monetary Policy and the Law of Unintended Consequences William R. White August 2012 Revised September 2012 Abstract-------------------------------------------------------------------------- In this paper an attempt is made to evaluate the desirability of ultra easy monetary policy by weighing up the balance of the desirable short run effects and the undesirable longer run effects the unintended consequences. The conclusion is that there are limits to what central banks can do. One reason for believing this is that monetary stimulus operating through traditional flow channels might now be less effective in stimulating aggregate demand than previously. Further cumulative stock effects provide negative feedback mechanisms that over time also weaken both supply and demand. It is also the case that ultra easy monetary policies can eventually threaten the health of financial institutions and the functioning of financial markets threaten the independence of central banks and can encourage imprudent behavior on the part of governments. None of these unintended consequences is desirable. Since monetary policy is not a free lunch governments must therefore use much more vigorously the policy levers they still control to support strong sustainable and balanced growth at the global level. JEL codes E52 E58 William R. White is currently the chairman of the Economic Development and Review Committee at the OECD in Paris. He was previously Economic Advisor and Head of the Monetary and Economic Department at the Bank for International Settlements in Basel Switzerland. 41 0 79 834 90 66. . This is a slightly revised version of the paper circulated in August 2012. The views in this paper are those of the author and do not necessarily reflect the views of organizations with which the

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