“Tight, loose, irrelevant,” published by The Economist

Available online at: http://www.economist.com/news/finance-and-economics/21625875-interestrates-do-not-seem-affect-investment-economists-assume-tight-loose.
Prompt: The Bank of Canada, the branches of the U.S. Federal Reserve, and other central banks
around the world employ many recent undergraduates as research analysts. One of the duties of
a central bank research analyst is to write “policy briefs, “short essays on new empirical facts
or other research findings with an emphasis on their implications for monetary policy. The
intended audience/or these policy briefs is the governor (and his or her staff) of the central
bank. This audience typically has an economics background- they are familiar with the models
we have studied in class, but may need some reminding about how they work.
Imagine you are a research analyst at the Bank of Canada (or the central bank of a country of
your choice), and you have been tasked by your supervisor to write a policy brief about the
article above. In particular, you have been asked to summarize the findings described in the
article and evaluate their implications for monetary policy, focusing on two key questions:
I. What do these findings imply about the efficacy of monetary policy for mitigating the
effects of demand shocks on short-term output, and why?

  1. What do these findings imply about the appropriate level of “aggressiveness” in your central bank ‘s monetary policy rule?
    In writing your assignment, part of your task will be to determine which models we have studied are most useful in explaining your reasoning. The focus of your analysis should be economic intuition, not just mathematical mechanics.

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