Exam 26: Transmission Mechanisms of Monetary Policy

In the early 1960s, monetarists used reduced-form timing, statistical, and historical evidence to show that ________.

When using reduced-form evidence to evaluate monetary policy and find that M affects Y, ________.

Reverse causation between money and aggregate output is likely to be a problem when a central bank targets ________.

According to Tobin's q theory, ________ policy can affect ________ spending through its effect on the prices of common stock.

According to the household liquidity effect, an expansionary monetary policy causes a ________ in the value of households' financial assets, causing consumer durable expenditure to ________.

When the Bank of Canada has an interest rate target, ________ output might lead to a ________ money supply.

A basic principle in economics is that ________ does not necessarily imply ________.

A basic principle in economics is that correlation ________ imply ________.

In a study published in 1963, Milton Friedman and Anna Schwartz found that in every business cycle they studied over nearly a hundred-year period, ________.

Early Keynesians believed that low ________ during the Great Depression indicated that ________ policy was easy.

________ nominal interest rates do ________ indicate that the cost of borrowing is ________.

Early Keynesians felt that ________ policy was ________, so they stressed the importance of ________ policy.

What structural evidence lead early Keynesians to believe that monetary policy does not matter?

Tobin's q is defined as the market value of firms ________ the replacement cost of capital.

Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank's conduct of monetary policy. These lessons include:

According to Tobin's q theory, when equity prices are low the market price of existing capital is ________ relative to new capital, so expenditure on fixed investment is ________.

What is reverse causation and how does it relate to reduced-form evidence on monetary policy transmission?

One of the best examples of an episode in which a change in monetary policy appears to have been an exogenous event is the ________ in reserve requirements in ________.

Monetarists' preference for reduced-form models is based on their belief that ________.

What do you know about the reduced-form evidence in describing the transmission mechanism of monetary policy? provide a brief description.