Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- List of contributors
- Acknowledgements
- URL disclaimer
- 1 Introduction: the transmission mechanism and monetary policy
- 2 Are the effects of monetary policy in the euro area greater in recessions than in booms?
- 3 Supply shocks and the ‘natural rate of interest’: an exploration
- 4 Some econometric issues in measuring the monetary transmission mechanism, with an application to developing countries
- 5 Central bank goals, institutional change and monetary policy: evidence from the United States and the United Kingdom
- 6 The transmission mechanism of monetary policy near zero interest rates: the Japanese experience, 1998–2000
- 7 What does the UK's monetary policy and inflation experience tell us about the transmission mechanism?
- 8 Modelling the transmission mechanism of monetary policy
- 9 Empirical evidence for credit effects in the transmission mechanism of the United Kingdom
- 10 Uncovered interest parity with fundamentals: a Brazilian exchange rate forecast model
- 11 Uncovered interest parity and the monetary transmission mechanism
- Bibliography
- Index
3 - Supply shocks and the ‘natural rate of interest’: an exploration
Published online by Cambridge University Press: 22 September 2009
- Frontmatter
- Contents
- List of figures
- List of tables
- List of contributors
- Acknowledgements
- URL disclaimer
- 1 Introduction: the transmission mechanism and monetary policy
- 2 Are the effects of monetary policy in the euro area greater in recessions than in booms?
- 3 Supply shocks and the ‘natural rate of interest’: an exploration
- 4 Some econometric issues in measuring the monetary transmission mechanism, with an application to developing countries
- 5 Central bank goals, institutional change and monetary policy: evidence from the United States and the United Kingdom
- 6 The transmission mechanism of monetary policy near zero interest rates: the Japanese experience, 1998–2000
- 7 What does the UK's monetary policy and inflation experience tell us about the transmission mechanism?
- 8 Modelling the transmission mechanism of monetary policy
- 9 Empirical evidence for credit effects in the transmission mechanism of the United Kingdom
- 10 Uncovered interest parity with fundamentals: a Brazilian exchange rate forecast model
- 11 Uncovered interest parity and the monetary transmission mechanism
- Bibliography
- Index
Summary
Introduction
We consider a small, open economy inhabited by an optimising corporate sector and a large number of optimising individuals who each period must formulate, amongst other things, dynamic programmes for investment and consumption following stochastic shifts in total factor productivity. We then ask three questions: What would the marginal productivity of capital, or real interest rate, look like over the course of the cycle in such an economy? How closely does the observed real interest rate in a small, open economy (the United Kingdom) resemble this hypothetical rate? And can we describe ‘inflation and output determination as depending on the relation between a ‘natural rate of interest’ determined primarily by real factors and the central bank's rule for interest rates’ (Woodford, 2000a, p. 2)?
We are accustomed to the supply side of an economy, as measured by the long-run average rate of productivity growth, being the most natural explanation for long-run real outcomes in growth and welfare (Griliches, 1996). But, as economists have recognised that the productivity cycle might be closely related to the propagation or impulses of the business cycle, the cyclical behaviour of productivity has increasingly attracted their attention (Cooley, 1995). Beginning with the seminal papers of Long and Plosser (1983) and Kydland and Prescott (1982), an important strand of macroeconomic research has attempted to construct small, theoretically coherent models based on optimising agents that capture key cyclical patterns in the actual data.
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- Monetary Transmission in Diverse Economies , pp. 49 - 67Publisher: Cambridge University PressPrint publication year: 2002