They key remains being confident about the role of the central bank to achieve its inflation target and a sophisticated in-depth critique of the monetary transmission mechanism with use of AS/AD analysis. Remember 6EC04 is synoptic so do not hold back from heavy use of AS knowledge but crically analysed in a sophisticated way drawing on your knowledge of USA, EU and Japan.
Key issues
1. Base rates at all time low for a number of years - lack effectiveness? So need for Central Bank QE essentially increasing money supply into banks and Government intervention 'Funding for Lending' getting the banks to lend to small firms and first time buyers (but fuelling housing boom in UK)
2. Continuing credit crunch - unwillingness of banks to lend to consumers and firms
3. Low consumer and business confidence - unwillingness of firms and consumers to borrow
4. Inability of monetary policy to cope with supply side shocks and one-off sharp movements in currencies
5. Ability of monetary policy to avoid deflation - the 'great recession' has not felt like the 'great depression' for many households and firms.
Some good articles in the Telegraph today on Monetary policy:
Brief summary - http://www.telegraph.co.uk/finance/economics/10872804/ECB-interest-rate-decision-live.html
In depth complex analysis - http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10876377/The-nagging-fear-that-QE-itself-may-be-causing-deflation.html
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