Ran into some schweser inconsistency that want to resolve. For Fixed / Feedback rules of monetary policy under productivity shocks, there are the following scenarios. Supply shock Monetarist Fixed Rule (and please let me know if I am correct is stating there is no such thing as a monetarist feedback rule) states you do nothing, let equilibrium play out in longer run. Input prices should settle back down. Keynesian Feedback rule. Stabalize price or real gdp. Stabalizing price by cutting money supply; price levels will go back to original level but at a low real gdp. Stabalize GDP, prices rise. Demand shock Monetarist Fixed Rule: Again, do nothing Keynesian Feedback rule. Cut money supply to decrease demand pulling back to potential gdp but at a higher price. Correct?!
> Keynesian Feedback rule. Stabalize price or real > gdp. Stabalizing price by cutting money supply; > price levels will go back to original level but at > a low real gdp. Stabalize GDP, prices rise. > CORRECT, FED WILL STEP IN AND JACK RATES TO KEEP PRICING POWER EROSION FROM RUNNING UNABATED. RECALL THE FEDS # 1 GOAL - PRICE STABILITY > > Demand shock > > Monetarist Fixed Rule: Again, do nothing > > Keynesian Feedback rule. Cut money supply to > decrease demand pulling back to potential gdp but > at a higher price. > > > RIGHT, LOWER MONEY SUPPLY = HIGHER RATES AND THUS LOWER DEMAND FOR GOODS
only Monetarist Fixed Rule, no feedback.