Monetary Policy

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Set by central banks

• interest rates via cash rates
• inflation targets
• balance sheets
• expectations of future policies

Dual mandate:

Inflation <—> Employment

Central bank balance sheets

• buying back govt bonds
• also known as quantitative easing
• lowers interest rates

Forward guidance Comments from central banks are enough to impact the economy

Central banks

• Hawkish -> raising interest rates
• Dovish -> lowering interest rates