Inflation and the central bank independence - Inflation, central bank independence and the EMS

10 important questions on Inflation and the central bank independence - Inflation, central bank independence and the EMS

Why does a government have more incentive for surpise inflation than an independent central bank?

Because surprise inflation lowers the real value of government debt

In inflation-income space, whose indifference curve is steeper? Central bank or government?

government

What two tools can be used to lower inflation?

Inflation targets
More independence for central bank
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Why would a country fix rules on how to handle macroeconomic conditions?

To limit the control policy makers have over money supply.

What is the formula for the Taylor Rule?

i = iTarget + .5(π-πTarget) + .5(Y-Y*)

What is the most used method for reducing instrument potency?

Pegging the currency

What does a currency board do?

It fixes the country's exchange rate and maintains total backing of its money supply with foreign exchange

What happens when a currency is pegged under a crawling peg?

Then the exchange rate is adjusted periodically in small, preannounced steps

When a country switches from flex/fixed exchange rates to the other, and the SAS becomes steeper; which way did the country switch?

From flexible to fixed

What is the producer price index?

The index of revenues received from domestic produced goods

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