Identify whether the Fed should continue its current pace of securit.pdf
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The document discusses whether the Federal Reserve should continue its current pace of security purchases and establish effective 'forward guidance' for future policy actions. It emphasizes the importance of keeping interest rates low and suggests that monetary policy remains relevant despite changes in economic dynamics. Furthermore, it highlights the relationship between investment and foreign direct investment (FDI), concluding that the effectiveness of these policies depends on whether the focus is on domestic investment.
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Identify whether the Fed should continue its current pace of securit.pdf
- 1. Identify whether the Fed should continue its current pace of security purchases, and indicate what “forward guidance” the Fed should issue now and why? Be specific in answering the question. Forward guidance is the specific language the Fed uses to indicate the direction and extent of their future policy action. (Give Citations) Solution It is a tool by which one keep promise to maintain the interest rate low by central bank by its monetary power. In the supply of liberalization era supply is the sole determinator. Hence, monetary policy is useful. LM curve to some extent is not exogenous now. It has been replaced by Taylor's curve. Hence, it is good to raise investment. But how much this parity goes with FDI it depends. If it is only the matter of domestic investment then, it is a proper tool.