Chapter 26: Q.15 (page 691)
Why does the credit view imply that monetary policy has a greater effect on small businesses than on large firms?
Small firms will be particularly affected by monetary policy changes that affect lending access.
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From to , auto loan rates in the United States have declined from around to near historic lows of around . At the same time, auto sales increased to near historic high levels by . How, if at all, does this relate to the monetary transmission mechanisms?
During and after the global financial crisis, the Fed reduced the fed funds rate to nearly zero. At the same time, the stock market fell dramatically and housing market values declined sharply. Comment on the effectiveness of monetary policy during this period with regard to the wealth channel
How can the interest rate channel still function when short term nominal interest rates are at the zero lower bound?
A "rate cycle" is a period of monetary policy during which the federal funds rate moves from its low point toward its high point, or vice versa, in response to business cycle conditions. Go to the St. Louis Federal Reserve FRED database, and find data on the federal funds rate (), real business fixed investment (), real residential investment (), and consumer durable expenditures (). Use the frequency setting to convert the federal funds rate data to "quarterly," and download the data.
a. When did the last rate cycle begin and end? (Note: If a rate cycle is currently in progress, use the current period as the end.) Is this rate cycle a contractionary or an expansionary rate cycle?
b. Calculate the percentage change in business fixed investment, residential (housing) investment, and consumer durable expenditures over this rate cycle.
c. Based on your answers to parts (a) and (b), how effective was the traditional interest rate channel of monetary policy over this rate cycle?
"A decrease in short-term nominal interest rates necessarily implies a stance of monetary easing." Is this statement true, false, or uncertain? Explain your answer.
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