O'Reilly logo

Monetary Policy within the IS-LM Framework by Shahdad Naghshpour

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Chapter 10

Inflation Targeting

Inflation targeting is proposed by Taylor.1 Inflation targeting is a modified version of Friedman’s2 proposal of a fixed growth rate for money supply. McCallum3 proposes a 3% growth rate for the supply of money, which is adjusted in response to changes in the growth rate of nominal gross national product (GNP). The foundation of inflation targeting is formed by the rational expectations hypothesis. The hypothesis demonstrates that indiscriminate use of monetary, fiscal policy, or both would teach economic agents to anticipate their consequences and correct their behavior accordingly; thus rendering discretionary policy ineffective over time. The ineffectiveness of monetary policy is a prominent component of the ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required