1. 16 questions on monetary policy asked by Professor Alan Blinder 15th Vice Chairman of the Federal Reserve In office: Jan 31,1996-Feb 1, 2006 Today: Princeton University

2. What is the proper objective function for monetary policy?
How transparent should the central bank be?
Should the central bank be an inflation targeter, as that term is commonly used?
Should monetary policy decisions be made by a single individual or by a committee – and, if the latter, what type of committee?

3. 5) Should the central bank also regulate and/or supervise commercial banks? 6) Is the inclination of central bankers to avoid policy reversals appropriate? 7) Does the preference of central bankers for gradualism make sense? 8) Is „fine tuning” possible after all? And if so, should central bankers attempt it?

4. 9) Should central bankers lead or follow the financial markets
9) Should central bankers lead or follow the financial markets? 10) Should central bankers in floating exchange rate regimes intervene in the foreign-exchange market? 11) Should central bankers use derivatives in the conduct of monetary policy? 12) Should transmission go through the term structure of interest rates?

5. 13) Should transmission go through the exchange rate
13) Should transmission go through the exchange rate? 14) How should the central bank deal with asset-market bubbles? 15) How should the central bank deal with the zero lower bound on nominal interest rates? 16) Do the world’s giant central banks have global responsibilities?

6. The exchange rate
Foreign exchange rate – the price at which one currency exchanges for another; the value of one currency expressed in terms of another currency
Foreign exchange market (FOREX) – the market in which the currency of one country is exchanged for the currency of another
Currency appreciation – the rise in the value of one currency in terms of another currency
Currency depreciation – the fall in the value of one currency in terms of another currency

7. Alternative currency regimes:
Currency board
Fixed peg
Crawling peg
Crawling band
Managed floating
Exchange rate smoothing
Pure floating

8. Main factors on which demand and supply in the Foreign Exchange Market depend:
The current exchange rate
The interest rate differentials
The expected future exchange rate

9. Determinants of exchange rate levels:
Structural: structure of a given economy, its competitiveness, current account
Business cycle related: GDP dynamic, inflation dynamic, changes of interest rate
Technical: intensity of technological change, technical infrastructure of markets
Political: political stability vs. political risks
Institutional: central bank’s credibility, quality of fiscal policy
Psychological: expectations of business and private households, perception of financial risk