Please try to be as concise as possible and do not write more than a paragraph for each question.13. Explain the Taylor Rule. How accurate is the Taylor rule in mimicking actual monetary
policy? What are the limitations of the Taylor rule, if any?
If the Fed faces the twin
problems of increased inflation and lower economic growth, what does the Taylor rule
imply for policy?
If the Fed were using the Taylor Rule as a policy guide now, what does
it say that the Fed should be doing with current monetary policy?
14. What is the natural real rate of interest? Why has it declined more recently, and why is it
important for the current approach to monetary policy? More generally, how does this
explain why the current tightening cycle will be ‘slower and lower’ than in the past?
15. Explain some of the benefits and risks of maintaining a large balance sheet. How does
this explain the Fed’s current policy of reinvestment of principle?
This question was answered on: May 23, 2022
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