Question 1:

"Policy can be conducted by rules or discretion.. The increased role of expectations led to some economists arguing that it would be best to force monetary policy makers to commit to following a policy rule instead of allowing them to pick the appropriate policy at their discretion. However, the issue lies in the credibility of policy rules as the optimal policy rule is subject to a time-inconsistency problem. This problem can be partly overcome by taking appropriate measures with regards to the operation of the central bank."

Required:

Analyse in detail the above statement. Use appropriate models where needed.

Question 2:

Write on any two of the following:

(a) Inflation Targeting
(b) Central Banking pre and post financial crisis
(c) The repo rate as an instrument for monetary policy of the Bank of Mauritius