Monetary policy has an important influence on inflation. For instance in the US when the federal funds rate is reduced, the resulting stronger demand for goods and services tends to push wages and other costs higher, reflecting the greater demand for workers and materials that are necessary for production. In addition, policy actions can influence expectations about how the economy will perform in the future, including expectations for prices and wages, and those expectations can themselves directly influence current inflation. In 2008, with short-term interest rates essentially at zero and thus unable to fall much further, the Federal Reserve undertook nontraditional monetary policy measures to provide additional support to the economy. The contribution that monetary policy makes to sustainable growth is the maintenance of price stability. Theory and empirical evidence in the literature suggest that sustainable long term growth is associated with lower price levels. In other words, high inflation is damaging to long-run economic performance and welfare.
Introduction – Comprehensive and persuasive rationale with a clear statement of the research problem and associate objectives
Literature Review:
– Sources used with discrimination
– Coherent and entirely justified conceptual framework to support the research undertaken
– Sophisticated use of examples
– Selected Reading to include:
Bernanke, B. S. and Gertler, M. (2000). Monetary policy and asset price volatility. NBER WP n. 7559.
Castelnuovo, E. (2007). Taylor Rules and Interest Rate Smoothing in the Euro Area, The Manchester School, 75(1): 1-16.
Gerlach, S., & Schnabel, G. (2000). The Taylor rule and interest rates in the EMU area. Economics Letters, 67(2), 165-171.
Taylor, J.B., 1993, December. Discretion versus policy rules in practice. In CarnegieRochester conference series on public policy (Vol. 39, pp. 195-214). North-Holland.
Empirical Framework and Data Description
– Fully appropriate choice and application of data collection methods which is entirely justified
– Original and creative selection of data
Empirical Analysis
– Strong and broad evidence of an excellent level of analysis and use of appropriate techniques
-Exceptional analysis of key concepts with very clear originality and autonomy
Conclusion – Strong original conclusion with extensive evidence of the ability to critically evaluate the research results
Preliminary thoughts outside of periods of market turmoil, interests move very closely with average output gaps and inflation / Monetary policy and financial markets have become intertwined
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