he IS - LM - BB: A Model For Unconventional Monetary Policy
Journal Title: International Journal of Scientific Research and Management - Year 2016, Vol 4, Issue 11
Abstract
The Monetary policy of the United States has not been the same since the 2008 - 2009 international crisis. Following the crisis, given that the federal funds interest rate - the conventional monetary policy instrument - fell to almost zero, the Federal Reser ve (FED) had to resort to two unconventional instruments: Firstly, an announcement on the future trajectory of the short - term interest rate. Secondly, direct intervention in the long - term bond market. The objective of this article is to extend the IS - LM model devised by Hicks (1937), to incorporate American monetary policy innovations. This updated model, unlike IS - LM, takes into account that the FED administers the short - term interest rate, not monetary supply, which is endogenous. On the other hand, so as to address quantitative easing , a long - term bond market is added to the IS - LM - in which there only exists a short - term bond market - by resorting to Tobin (1981). This article shows that the old models and the old methods remain very useful in dealing with contemporary macroeconomic problems
Authors and Affiliations
Waldo Mendoza Bellido
Keywords
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