Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 17: Q.1 (page 468)

1. What are the benefits of using a nominal anchor for the conduct of monetary policy?

Short Answer

Expert verified

The benefits of using a nominal anchor for the conduct of monetary policy are,

  • A nominal anchor helps boost price solidity
  • It can furthermore restrict the time-inconsistency issue

Step by step solution

01

Concept introduction

A nominal anchor is an unstable policymaker that can operate to tie down the price level. One nominal anchor central banks operated in history was a currency peg—which connected the value of the domestic currency to the value of the currency of a low-inflation nation

02

Explanation

A nominal anchor helps boost price solidity by connecting inflation anticipations to lower statuses straight via its discretion on the worth of money.

It can furthermore restrict the time-inconsistency issue by supplying an anticipated constraint on monetary policy.

03

Final answer

The benefits of using a nominal anchor for the conduct of monetary policy are,

  • A nominal anchor helps boost price solidity
  • It can furthermore restrict the time-inconsistency issue

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Many countries have central banks that are responsible for their nation’s monetary policy. Go to http:// www.bis.org/cbanks.htm, and select one of the central banks (for example, the central bank of Norway). Review that bank’s website to determine its policies regarding the application of monetary policy. How does this bank’s policies compare to those of the U.S. central bank?

Why might macroprudential regulation be more effective in managing asset-price bubbles than monetary policy ?

What are the key advantages and disadvantages of the monetary strategy used by the Federal Reserve under Alan Greenspan, in which the nominal anchor was implicit rather than explicit?

“Interest rates can be measured more accurately and quickly than reserve aggregates; hence an interest rate is preferred to the reserve aggregates as a policy instrument.” Do you agree or disagree? Explain your answer

“The zero lower bound on short-term interest rates is not a problem, since the central bank can just use quantitative easing to lower intermediate and longer-term interest rates instead.” Is this statement true, false, or uncertain? Explain.
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free