Reading 1.4: Monetary and Fiscal Policy

connect interest rates and exports

lower interest rates- depreciation of domestic currency… other countries can buy your goods for cheaper and so your expors increase

neutral rate

aka equilibrium rate- rate at which a balance between grwoth and inflation is achieved

what composes the neutral rate

inflation

real growth

judgment from policy makers

what does the taylor rule produce and how

the target interst rate

uses- neutral rate, expected GDP relative to long term trend

expexted inflation relative to target

if monetary restrictive and fiscal stimulative…

yield curve flat

economy implications unclear

monetary stimulative, fiscal restrictive

moderately steep yield curve

implications for economy less clear