econnomices exercises

Monetary Policy (EC470) Homework 4

Giorgi Nikolaishvili

August 9, 2021

Exercise 4 (Monetary Institutions and Strate-

gies)

Part (a)

Consider a policy of “output and inflation targeting”: the central bank an- nounces numerical targets for both inflation and real GDP. What are the pros and cons of such a policy? No central bank has seriously considered this approach. Why not?

Part (b)

In 2006, Ben Bernanke said the goals of strong output growth and low infla- tion “are almost always consistent with each other.” Alan Greenspan once called the trade-off between output and inflation “ephemeral.” (i) Are these statements accurate? Explain. (ii) Why do you think the chairmen made these statements?

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