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Monetary policy explain
Monetary policy explain
Monetary policy explain
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I. INTRODUCTION
Monetary Policy is how the Central Bank influences the path it wants the economy to follow. It does this through the control of money supply using the short term interest rate as the primary instrument to control inflation and economic growth.
The objectives of most Central banks is to sustain low unemployment and relatively stable prices however price stability is the main, medium and longer run goal of monetary policy. An expansionary monetary policy is targeted at increasing the money supply through lowering interest rates with the hope of increasing consumption and investment through easing credit; it is used to combat unemployment in periods of recession. A contractionary policy however is used to decrease money supply by increasing the interest rate; it is intended to slow down inflation.
Monetary policy has been an area with lots of economic research in several countries with the focus being on the empirical analysis of monetary policy shock on output and prices. Econometric models have been used to determine the effects of different policy options. With time, econometric analysis techniques have improved and most recent literatures have estimated the effects of monetary policy using VAR and SVAR techniques, this has allowed the evaluation of the effectiveness of monetary policy in several countries.
In the actual, shocks in the economy are driven by developments beyond the central bank. Studies on monetary policy have exhibited a large variance in results amongst different countries primarily resulting from the different business cycles experienced at different times between countries; output and prices appear to be strong or weak depending on sample periods
The objective of this study is to examine th...
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16. Wu C. Jing and Xia D Fan, 2013, “ Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound”, Federal Reserve Bank of San Francisco
...policy provided more empirical evidences. The responsibility of the monetary policy is proved by them. When the Federal Reserve makes the monetary policy, the authorities should respect the Taylor’s rule.
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Metzler, Allan H. A History of the Federal Reserve, Vol I and II. University Press Books, 2002
Kroon, George E. Macroeconomics The Easy Way. New York: Barron’s Educational Series, Inc., 2007. Print.
Mishkin. F. C. (2009). The Financial Crisis and the Federal Reserve. NBER Macroeconomics Annual, 24, 495-508
In the study of macroeconomics there are several sub factors that affect the economy either favorably or adversely. One dynamic of macroeconomics is monetary policy. Monetary policy consists of deliberate changes in the money supply to influence interest rates and thus the level of spending in the economy. “The goal of a monetary policy is to achieve and maintain price level stability, full employment and economic growth.” (McConnell & Brue, 2004).
This essay seeks to explain what are monetary and fiscal policy and their roles and contribution to the economy. This includes the role of the government in regulating the economical performance of a country. It also explains the different features and tools of monetary and fiscal policy and their performance when applied to the third world countries with a huge informal sector.
McCallum, Bennett T. "Crucial issues concerning central bank independence." Journal of Monetary Economics 39.1 (1997): 99-112.
Labonte, M. (January 7, 2014). Monetary Policy and the Federal Reserve; Current Policy and Conditions. Congressional Research Service.
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Kelly, Robert G. "Keynesian Macroeconomics & Demand side effect " Journal of Economic Perspectives, no. 1, 37-72.
Difficulties in Formulating Macroeconomic Policy Policy makers try to influence the behaviour of broad economic aggregates in order to improve the performance of the economy. The main macroeconomic objectives of policy are: a high and relatively stable level of employment; a stable general price level; a growing level of real income (economic growth); balance of payments equilibrium, and certain distributional aims. This essay will go through what these difficulties are and examine how these difficulties affect the policy maker when they attempt to formulate macroeconomic policy. It is difficult to provide a single decisive factor for policy evaluation as a change in political and/or economic circumstances may result in declared objectives being changed or reversed. Economists can give advice on the feasibility and desirability of policies designed to attain the ultimate targets, however, the ultimate responsibility lies with the policy maker.
Ferguson, S (1999) Keynesian Theory and its implication, College of Management and Economics, Canada University, 298-312
It is difficult for government to achieve all the macroeconomics objectives at the same time. Conflicts between macroeconomics objectives means a policy irritating aggregate demand may reduce unemployment in the short term but launch a period of higher inflation and exacerbate the current account of the balance of payments which can also dividend into main objectives and additional objectives (N. T. Macdonald,