Us Monetary Policy

US Monetary Policy A stock market ram down is, by definition, a precipitous and rapid collapse in the equity prices, usually caused by panic selling. There ar several stock market crashes in the history, all direful enormous costs on the economy. We are going to justify what the US monetary policy did to minimize the cost of dotcom card-house successfully. Based on the IS/PC/MR model, which is assumed to start forth with the equilibrium come forwardput Yo and target ostentatiousness ?T, the unexpected controvert demand misfortune shifted the IS curve to the left and the economy went out of equilibrium. Our model also assumes that the supply side of the economy and exchange banks preference are fixed, in this case is the dual legislation which the Fed is commited to. In the aftermath of the dotcom bubble, the Dow Jones dropped by approximately 11%, the S&P by 23% and NASDAQ by 49% between Aug 2000 and Dec 2001(Fig.1). Suppose the supply estimates that the economy is shifted to vertex B and B, with a lower projection for take at Y1 and inflation at ?1, and predicts the inflation expectation ordain be ?1 and Phillips curve give be shifted to the strengthy with ?e=?1 in the conterminous period, assuming stickiness in labour market wage setting and adaptive inflation expectation.

Since the monetary policy takes time to feed through the economy, the fed have to cut interest rate to r2 now to grasp its optimum point C given PC1 in the next period?? The policy responses would differ, depending on the feds judgement on the nature of the appall. Given the fact that the Fed cut two the target Fund Rate and the Discount Rate of 50bps for 5 times, which were really aggressive. This might suggest that Fed believes the permanent shock will reduce stablizing interest rate to rs. Had the Fed believed the shock is only temporary, the cut would be much smaller(r2), since the economy will move back to the initial equilibrium A. Though it might be the case the fed had realized its underestimation of virulence of the... If you want to get a full essay, order it on our website: Ordercustompaper.com

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