Reference no: EM131488517

1. Why is credibility important for a central bank? How does it help promote stability in the face of shocks? How might the Volcker disinflation have been different had the Fed had more credibility in the 1970s? Show and explain. How does inflation expectations and the Fed's mandate relate to credibility?

2. Choose three conventional transmission channels. Discuss how they work to affect the economy under normal circumstances, and also discuss and present evidence on how they may have been ineffective during the height of the financial crisis (be specific as it relates to the chain of impacts). Discuss how the Fed's nonconventional policies helped to address these broken transmission mechanisms, by creating new channel(s).

3. Discuss three distinct ways the Fed can enhance its credibility. Be specific as to what they are, and how and why specifically they work to improve credibility.