CFA三级第二册课后 2020 Level III - SchweserNotes Book 2.pdf

The Taylor rule determines the target interest rate using the neutral rate, expected GDP relative to its long-term trend, and expected inflation relative to its targeted level: ntarget rneutral + itarget + [0.5(GDPexpected − GDPtrend) + 0.5(iexpected − itarget)] A central bank can use the Taylor rule to determine the appropriate level for short-term interest rates. An investment strategist who expects unanticipated changes in the inputs to the Taylor rule can use the rule to anticipate changes in short-term interest rates by the central bank. Another tool at the government’s disposal for managing the economy is fiscal policy. If the government wants to stimulate the economy, it can implement loose fiscal policy by decreasing taxes or increasing spending, thereby increasing the budget deficit. If they want to rein in growth, the government does the opposite to implement fiscal tightening. LOS 10.i The yield curve demonstrates the relationship between interest rates and the maturity of debt securities. The curve is sensitive to government actions as well as current and expected economic conditions. When both fiscal and monetary policies are expansive, the yield curve is sharply upward sloping, which indicates that the economy is likely to expand in the future. When fiscal and monetary policies are restrictive, the yield curve is downward sloping, indicating that the economy is likely to contract in the future. When fiscal and monetary policies are in disagreement, the shape of the yield curve is less definitively formed. If monetary policy is expansive while fiscal policy is restrictive, the yield curve tends to be upward sloping, though less steep than when both policies are expansive. If monetary policy is restrictive while fiscal policy is expansive, the yield curve tends to be flatter. LOS 10.j Macroeconomic links refer to similarities in business cycles across countries. Economies are linked by