Reading 66: Monetary Policy in an Environment of Global Fi

答案和详解如下：

1.Gaspar, Perez, and Sicilia examined the behavior of overnight interest rates between 1999 and 2001 and found that the financial markets during that period did not make systematic errors with regard to the announcements of monetary policy by the European Central Bank (ECB). Moreover, another study by Hartmann, Manna, and Manzanares in 2001 further concluded that after monetary policy announcements by the ECB, overnight interest rates moved by less than 5 basis points. These studies were attempting to measure which aspect of the ECB’s monetary policy?

A)   Credibility.

B)   Transparency.

C)   Stability.

D)   Predictability.

The correct answer was D)

Overnight interest rates and short-term forward rates can be used as measures of how well markets predict a central bank’s monetary policy decisions.

2.To be most effective and operate smoothly, a central bank’s monetary policy changes should most likely be:

A)   infrequent.

B)   imprudent.

C)   predictable.

D)   asymmetrical.

The correct answer was C)

Monetary policy changes should be credible, predictable, and transparent. Whether they should be infrequent depends on the economic situation, the arrival of new information, and the frequency and significance of shocks to the financial system. Imprudent and asymmetrical make little sense in this context.

3.John Deveraux, an analyst at Pariston Capital Management LLC, made the following statements about the importance of monetary policy for the economy and the financial markets:

Statement 1: The predictability of central bank policy decisions can be measured by the consequent change in overnight rates and by how well forward rates anticipate the effects of actual future policy decisions.

Statement 2: Symmetrical information may cause a central bank to make policy moves that are unanticipated by financial markets, even when policy reactions to information known to financial markets are predictable and the decision-making process is transparent.

Are Statement 1 and Statement 2 as made Deveraux correct?

A)                                        Correct  Correct

B)                                        Correct  Incorrect

C)                                        Incorrect       Incorrect

D)                                        Incorrect       Correct

The correct answer was B)

It is information asymmetry, not symmetrical information, that may cause a central bank to make policy moves that are unanticipated by financial markets, even when policy reactions to information known to financial markets are predictable and the decision making process is transparent.

4.At times a central bank may undertake an action or policy shift that is unanticipated by the financial markets even when policy reactions to information are predictable and the central bank’s decision-making process is transparent. One such condition relates to:

A)   herding behavior.

B)   principal-agent information.

C)   asymmetric information.

D)   the prisoner’s dilemma.

The correct answer was C)

The markets cannot forecast every monetary policy change. Economic shocks or extraordinary events can call upon the central bank to act quickly in ways that could not have been seen in advance. The central bank will sometimes have information that financial markets do not. When there is information asymmetry of this type, even transparent decision making by the central bank and a credible commitment to long-term price stability may not be enough to prevent markets from being surprised by central bank policy changes.

5.During the 2006 International Economic Forum in Oslo, Norway, a panel of economists discussed central bank monetary policy. Below are two statements made during the forum:

Statement 1: There is no benefit to the European Central Bank (ECB), or any other central bank for that matter, in pursuing a strategy aimed at surprising the financial markets. Such a strategy would only serve to diminish the credibility of the central bank and cause uncertainty in the financial markets.

Statement 2: Over the years the financial markets have been able to perfectly anticipate central bank policy despite changing economic conditions, extraordinary events, or economic shocks. As such, a central bank cannot successfully undertake monetary policy changes that are unexpected by the financial markets.

Are the statements as made by the two panelists correct?

A)                                        Correct  Incorrect

B)                                        Incorrect       Correct

C)                                        Correct  Correct

D)                                        Incorrect       Incorrect

The correct answer was A)

Statement 1 is correct as stated. However, statement 2 is incorrect. Financial markets cannot perfectly anticipate central bank monetary policy changes. Economic shocks, changes in economic conditions and extraordinary events may require a central bank to take monetary policy actions that are not fully anticipated by market participants. That is because the central bank may have information that the financial markets do not, creating “information asymmetry”.

6.The major overall policy strategy of a central bank should be to:

A)   communicate a clear and credible monetary policy and avoid deliberate attempts to surprise the markets.

B)   regulate the levels of excess reserves held by member banks.

C)   regulate business to ensure that no improper economic activity is transpiring.

D)   keep the discount rate in line with short-term market rates.

The correct answer was A)

It is the role of a central bank to regulate the money supply and thereby provide a monetary climate that is in the best interest of the economy. As such, the central bank should establish and communicate a clear and credible commitment to price stability and avoid any deliberate monetary policies that seek to shock the financial markets. The central bank should guide markets, not simply follow them.