1: According to Taylor (1993) why do rules have advantages over pure discretion when implementing monetary policy?
Why do you think that policy makers, in the past, have stressed monetary aggregates when implementing monetary policy despite difficulties in measurement? Describe what is meant by the Time Inconsistency. According to Thornton (2004) and Von Hagen (1999)why might central bankers opt for monetary targeting as opposed to stressing a policy interest rate? How important are political explanations of monetary policy? What insights may be gained from Abrams (2006) when addressing the political economy explanation of monetary policy?
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2: How might the elaboration of options Greeks provide useful diagnostics. In your analysis describe how commercial banks when lending - write a put option on debtors assets and government in turn writes a put option on banks. Describe the latent nonlinearity embedded in government guarantees using option theory.
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Deadline on 14 of March at 12 GMT.
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