The Strategy Of Central Banks

736 Words Apr 21st, 2016 3 Pages
From the past two decades these related researches have inspired people to reconsider the approaches central banks may adopt to deal with more volatile economy. As many of us have experienced boom-bust cycles not too long ago, since credit cycles or business cycles are nearly impossible to be totally eliminated, we expect monetary policy authority itself can at least reduce the severe aftermath. Better than simply relying on current methods, these innovative ideas may become the cornerstone to help central banks formulate more adaptive monetary policy, and before the ultimate consensus is reached, every debate is more than welcome.
Empirical Methodology
In this part I would like to outline which kind of empirical methodology I am going to utilize to test the theory I have discussed in the former part. Among all research papers mentioned before, I found the method used by Bordo and Jeanne is quite illustrative. In the following I will describe it step by step.
At the beginning we definitely need a clear criterion to determine whether the movement in asset prices represents a boom or bust, and this criterion should be unbiased, effective and easy to use. What’s more, it should be capable of picking out well-known boom-bust incidents, such as the Great Depression, without creating too many false alerts.
Surely there is more than one criterion, and I choose the one below because it can mostly satisfied the above prerequisites.
First I will compare the moving average of asset…

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