Monetary Policy Indicators

“Monetary Policy Indicators,” in Encyclopedia of Central Banking, (eds) Rochon L. P. and S. Rossi, Cheltenham, UK: Edward Elgar Publishing.

Introduction

Monetary policy indicators are variables used to provide information ti monetary authorities on the current expected future state of the economy.When monetary policy indicators are not consistent with central banks' expectations,they may signal that interest rates and monetary policy must be reconsidered.

This happens because the latter may otherwise give rise to undesirable outcomes such as inflation,negative output gap,unemployement,asset price bubbles,and prolonged recessions with respect to stated monetary policy objectives and targets by central banks.The term "indicator" nowadays is different from what was meant in the past.Brunner & Meltzer (1967) initially introduced the "indicator problem" as being related to identification of combination of variables,which signal best the "thrust" of current monetary policy on the state of the economy.

 

Tags: financial instability, Bubble, Monetary aggregates, Monetary Policy Instruments, Monetary Policy Objectives, Output gap, Taylor Rule

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