Chapter Six Cont'd

MONETARY POLICY:
INSTRUMENTS AND
TYPES
GEOFFREY ASIIMWE
UNIT ONE: INSTRUMENTS OF
MONETARY POLICY
UNIT TWO: EXPANSIONARY MONETARY

POLICY VS RESTRICTIVE MONETARY
POLICY
UNIT 3: LAG IN MONETARY
Agenda POLICY
UNIT 4 ROLE OF MONETARY POLICY IN

A DEVELOPING
ECONOMY
Unit one: Instruments of Monetary Policy
Monetary policy guides the central bank‘s supply of money in order to achieve
the objectives of price stability (or low inflation rate), full employment, and
growth in aggregate income. This is necessary because money is a medium of
exchange and changes in its demand relative to supply, necessitate spending
adjustments. Fiduciary or paper money is issued by the central bank based on an
Click icon to add picture
estimate of the demand for cash. To conduct monetary policy effectively, the
central bank adjusts the monetary aggregates, the policy rate or the exchange rate
in order to affect the variables which it does not control directly. The instruments
of monetary policy used by the central bank depend on the level of development
of the economy, especially the financial sector. These instruments could be direct
or indirect.
MONETARY POLICY & THEORY 3

Unit one: Instruments of Monetary Policy
The instruments of monetary policy are of two types:
1. Quantitative, general or indirect; and
2. Qualitative, selective or direct.
However, these two instruments affect the level of aggregate demand through the
supply of money, cost of money and availability of credit. Of the two types of
instruments, the first category includes bank rate variations, open market operations
(OMO) and changing reserve requirements. They are meant to regulate the overall
level of credit in the economy through commercial banks. The selective credit
controls aim at controlling specific types of credit. They include changing margin
requirement and regulation of consumer credit. So therefore we will start this lecture
by discussion them one after the other.
Direct Instruments of Monetary Policy
(a) Direct or Selective Credit Control
Direct or selective credit controls are tools used by central banks or monetary
authorities to regulate and direct the flow of credit to specific sectors or activities
in the economy. These controls areClick designed to achieve specific policy objectives,
icon to add picture
such as controlling inflation, promoting economic growth, ensuring financial
stability, or directing credit to priority sectors.
Unlike indirect monetary policy tools like interest rate adjustments, direct credit
controls target specific lending activities, borrowers, or sectors.

Direct Instruments of Monetary Policy
Purpose and Objectives of direct or selective credit control:
•Targeted Outcomes: Direct credit controls aim to influence the allocation and
availability of credit to achieve broader economic and social objectives, such as
controlling inflation, supporting small businesses, or promoting housing.
•Addressing Market Failures: These controls are employed when market forces
alone may not adequately achieve desired outcomes, or when there's a need to
correct market failures or imbalances.

Types of Direct Credit Controls:
•Credit Rationing: Imposing limits on the amount of credit that can be extended
to a particular sector or borrower group. This helps in controlling excessive
borrowing and lending to specific areas.
•Credit Allocation: Directing credit towards priority sectors or activities, often
through mandatory quotas or targets, to support sectors critical for economic
development (e.g., agriculture, small and medium-sized enterprises).
•Interest Rate Controls: Regulating the interest rates that banks can charge on
loans to specific sectors or borrowers. Lower rates can incentivize lending to
targeted sectors like housing or agriculture.

Implementation Mechanisms:
•Regulatory Guidelines: Central banks issue guidelines and regulations
specifying the terms and conditions for lending to targeted sectors, setting
mandatory lending targets, or defining interest rate caps.
•Mandatory Quotas: Requiring financial institutions to allocate a certain
percentage of their loan portfolio to specific sectors, such as agriculture, housing,
or small businesses.
•Credit Directive: Issuing directives or guidelines to commercial banks on the
allocation of credit and interest rates for various sectors, influencing their lending
behavior.

Indirect Instruments of Monetary Policy
1. Reserve Requirements
Reserve requirements are a monetary policy tool used by central banks to influence the
money supply and credit availability in the economy. It involves setting a minimum
percentage of deposits that banks must hold as reserves, either in the form of cash or as
deposits with the central bank. By adjusting these reserve requirements, central banks can
influence the lending capacity of banks and the overall money supply in the economy.
Here's an explanation using an example:
Example: Reserve Requirement Increase
Let's say the central bank decides to implement an increase in reserve requirements from
10% to 12% for all commercial banks. This means that banks are now required to hold
12% of their deposits as reserves with the central bank.
1.Initial Situation (Before the Increase):
1. Bank A has $100 million in deposits.
2. Reserve requirement: 10%.
3. Required reserves for Bank A = 10% of $100 million = $10 million.
4. Excess reserves for Bank A = $100 million (deposits) - $10 million (required reserves) = $90 million.
2.After the Reserve Requirement Increase (12%):
1. Bank A still has $100 million in deposits.
2. New required reserves for Bank A = 12% of $100 million = $12 million.
3. Bank A needs to increase its reserves by $2 million ($12 million - $10 million) to meet the new requirement.
4. Excess reserves for Bank A decrease to $88 million ($100 million - $12 million).
In this scenario, the central bank's increase in reserve requirements has resulted in Bank A needing to hold an
additional $2 million in reserves. This reduction in excess reserves limits the bank's ability to lend and create
new money through the lending process, as it has less available to loan out to consumers and businesses.

Impact on the Economy:
•The increase in reserve requirements reduces the overall money supply, as banks have to hold a
larger portion of their deposits as reserves and have less to lend.
•With reduced lending capacity, interest rates may rise, making borrowing more expensive for
consumers and businesses.
Click icon
•This action can help in controlling inflation andto add picture
excessive credit growth, as it slows down the
expansion of the money supply and curtails excessive borrowing and spending in the economy.
It's important to note that reserve requirement changes are powerful tools but are used cautiously,
as they can have a significant impact on the banking system and the broader economy. Central
banks carefully consider economic conditions and potential implications before making
adjustments to reserve requirements.
This weapon was suggested by Keynes in his Treatise on Money and the USA was the first to adopt it as a monetary
device. Every bank is required by the law to keep a certain percentage of its total deposits in the form of a reserve fund
in its vaults and also a certain percentage with the central bank.
2. Open Market Operations (OMO):
OMO are a crucial tool used by central banks to conduct monetary policy and
influence the money supply, interest rates, and overall economic activity. These
operations involve the buying and selling of government securities, such as
Treasury bills and bonds, in the open market. The primary objective of OMO is to
achieve the central bank's monetary policy goals, which typically include
controlling inflation, promoting economic growth, and ensuring price stability.
Here's a detailed explanation of how open market operations work and their
impact:

1.Buying and Selling of Securities:
1. When the central bank wants to inject money into the financial system, it purchases
government securities from banks and other financial institutions in the open market.
2. Conversely, when the central bank aims to reduce the money supply, it sells government
securities to these institutions. Click icon to add picture
2.Money Supply and Bank Reserves:

1. Buying government securities injects funds into the banking system. Banks receive cash
from the central bank in exchange for the securities, increasing their reserves and thus the
overall money supply.
2. Selling government securities absorbs funds from the banking system. Banks pay the
central bank for the securities, reducing their reserves and the money supply.

3. Effect on Interest Rates:
1. An increase in the money supply resulting from buying securities can lead to a decrease in
short-term interest rates, making borrowing cheaper. Lower interest rates encourage spending
and investment, stimulating economic growth.
2. A decrease in the money supply resulting from selling securities can lead to an increase in short-
term interest rates. Higher interest rates can reduce spending and investment, slowing down
economic activity.
4. Impact on the Bond Market:

3. OMOs influence the prices and yields of government securities in the bond market. When the
central bank buys securities, demand for these assets increases, driving up their prices and
lowering their yields (interest rates).
4. Conversely, when the central bank sells securities, it increases the supply of these assets,
leading to lower prices and higher yields.
3. Exchange rate
Exchange rates can indeed be a tool used in monetary policy, particularly in the
context of countries that have a flexible or managed float exchange rate regime.
The exchange rate, which is theClickvalue of one currency relative to another,
icon to add picture
plays a significant role in a nation's economy and monetary policy. Central
banks and monetary authorities can use exchange rate policies to achieve various
economic objectives, including controlling inflation, stimulating exports, and
maintaining economic stability.
Here's a discussion on how exchange rates are used as a tool of monetary
policy:

a) Exchange Rate Targets:
•Fixed Exchange Rate: In some cases, a country may peg its currency to another
currency or a basket of currencies. The central bank intervenes in the foreign
exchange market to maintain the exchange rate at a specific level. This approach
can help provide stability in international trade and investments.
•Crawling Peg: The central bank adjusts the exchange rate periodically to maintain
a desired depreciation or appreciation over time. This approach allows for more
flexibility while providing a degree of stability.
•Managed Float (Dirty Float): Under a managed float system, the exchange rate is
determined primarily by market forces but is occasionally influenced or managed by
central bank interventions to achieve specific policy goals.
b) Impact on Exports and Imports:
•Depreciation: Allowing a controlled depreciation of the domestic currency can boost a
country's export competitiveness by making its goods and services cheaper for foreign
buyers. This can stimulate exports and economic growth.
•Appreciation: A controlled appreciation of the domestic currency can reduce import
costs, helping to control inflation by lowering the price of imported goods and services.
c) Inflation Control:
The exchange rate can be used to control inflation by influencing import prices. A
higher exchange rate can decrease the price of imported goods and services,
contributing to lower inflation.

4. Moral Suasion
Moral suasion is a non-binding method or persuasive approach used by central
banks and monetary authorities to influence the behavior and decisions of
financial institutions, market participants, or economic agents in the financial
system. It is a softer form of influence that relies on moral authority, credibility,
and persuasion rather than direct regulations or legal mandates. Central banks use
moral suasion to guide and encourage market participants to act in a manner
consistent with monetary policy objectives.
Here are key aspects of moral suasion as a tool of monetary policy:

Communication and Guidance:
• Central banks often communicate their expectations, policy intentions, or preferred actions to financial institutions and
other stakeholders in the financial markets.
• This communication can be in the form of speeches, public statements, press releases, or informal discussions with market
participants.
Objectives of Moral Suasion: Click icon to add picture
• Alignment with Policy Goals: Encourages market participants to align their actions and decisions with the broader
monetary policy goals set by the central bank, such as controlling inflation, stabilizing the currency, or promoting economic
growth.
• Market Stability: Aims to maintain stability in financial markets by encouraging responsible behavior and discouraging
excessive speculation or risky activities.
Encouraging Responsible Behavior:

• Central banks may use moral suasion to promote responsible lending and borrowing practices, risk management, and
adherence to regulatory guidelines and prudential norms.
• For instance, a central bank might encourage banks to maintain adequate capital levels or exercise caution in extending
credit during a period of economic overheating.
5. Bank rate Policy
Also known as the policy rate, is a key tool of monetary policy used by central
banks to influence the overall level of interest rates in an economy and,
consequently, control money supply, inflation, and economic growth. It is the
interest rate at which a central bank lends to commercial banks and other financial
institutions. The bank rate is an important benchmark that affects the cost of
borrowing and lending throughout the economy.
Here's a detailed discussion on bank rate policy as a tool of monetary policy:

1.Setting the Bank Rate:
1. Central banks set the bank rate during their monetary policy meetings. The rate is determined based on various economic factors,
including inflation, economic growth, employment levels, and financial stability concerns.
2.Impact on Borrowing Costs:

1. An increase in the bank rate leads to higher borrowing costs for banks and, consequently, for businesses and consumers. This can slow
down borrowing and spending in the economy.
2. Conversely, a decrease in the bank rate lowers borrowing costs, encouraging businesses and individuals to borrow and spend, thus
stimulating economic activity.
3.Influence on Money Supply:

1. Changes in the bank rate affect the money supply in the economy. When the central bank raises the rate, borrowing becomes more
expensive, reducing the amount of money in circulation and potentially curbing inflation.
2. Conversely, a lower bank rate encourages borrowing, leading to an increase in the money supply and supporting economic growth.
4.Inflation Control:
1. Adjustments in the bank rate are often made with the objective of controlling inflation. Higher interest rates can help control
inflationary pressures by reducing spending and demand in the economy, while lower rates can stimulate spending to prevent
deflationary pressures.

CONCLUSION
We can conclude that monetary policy plays an important role in increasing the
growth rate of the economy by influencing the cost and availability of credit, by
controlling inflation and maintaining equilibrium in the balance of payments.

Self-Assessment Exercise
Explain the principal instruments of monetary policy.

POLICY VS RESTRICTIVE MONETARY POLICY
1. Expansionary Monetary Policy
An expansionary (or easy) monetary policy is used to overcome a recession or
depression or a deflationary gap. When there is a fall in consumer demand for
goods and services, and in businessClickdemand for investment goods, a deflationary
icon to add picture
gap emerges. The central bank start an expansionary monetary policy that eases
the credit market conditions and leads to an upward shift in aggregate demand.
For this purpose, the central bank purchases government securities in the open
market, lowers the reserve requirements of member banks, lower the discount
rate and encourages consumer and business credit through selective credit in the
money market, and improves the economy. The following are tools of
expansionary monetary policy
a) Lowering Interest Rates:
One of the central tools of expansionary monetary policy is lowering the policy interest rates, such as the
federal funds rate in the United States. Lowering interest rates makes borrowing cheaper for individuals and
businesses. When interest rates are lower, it becomes more attractive for businesses to invest in new projects
and for consumers to finance purchases through loans, including homes, cars, and other big-ticket items.
b) Open Market Operations (OMO):
Central banks conduct open market operations by buying government securities (bonds) from the market.
This injects money into the banking system, increasing bank reserves and encouraging lending. Banks are
then more likely to lend to businesses and individuals due to the increased liquidity, thus stimulating
spending and investment.
c) Reserve Requirement Reduction:
The central bank may reduce the reserve requirement, which is the percentage of deposits that banks are
required to hold as reserves. Lowering this requirement allows banks to lend out more money, further
stimulating economic activity.
Limitations of expansionary monetary policy
Expansionary monetary policy, while a powerful tool for stimulating
economic growth and stabilizing the economy, does have its limitations
and potential downsides: Click icon to add picture
Ineffectiveness at the Zero Lower Bound: When interest rates are

already near or at zero (the zero lower bound), further interest rate
reductions may have limited impact. This situation occurred during the
global financial crisis and has been an issue for central banks in Japan and
the Eurozone. In such cases, unconventional monetary policies like
quantitative easing (QE) or forward guidance may be necessary.
Lags in Effectiveness: Monetary policy actions take time to have their full
effect on the economy. There are often lags between the implementation of
policy changes (e.g., interest rate cuts) and their impact on spending,
investment, and employment. This delay can reduce the effectiveness of timely
stimulus during economic downturns.
Asset Price Inflation: Expansionary monetary policy, such as low-interest rates
and quantitative easing, can lead to inflated asset prices, including stocks and
real estate. This can create asset bubbles and wealth inequality as those who
own assets benefit more than those who don't. When these bubbles burst, it can
have adverse effects on the economy.
Inflation Risk: While the goal of expansionary policy is to stimulate demand, it
can also risk stoking inflation. If the economy is already operating near full
capacity and unemployment is low, a surge in demand can lead to inflationary
pressures. Central banks must carefully manage the balance between economic
growth and inflation.
Currency Depreciation: Lower interest rates, particularly when maintained over

an extended period, can lead to currency depreciation. While this may boost
exports, it can also lead to higher import prices and increased costs for consumers.

2. Restrictive/Contractionary Monetary Policy
Contractionary monetary policy, also known as restrictive
monetary policy, is a strategy employed by a country's central
bank to reduce the money supply and control inflation. Its main
objectives are to slow down economic growth, curb inflationary
pressures, and maintain overall economic stability. This policy is
generally implemented during periods of high inflation,
overheating, or an unsustainable boom in the economy. Here's a
detailed discussion of the tools contractionary monetary policy:
a) Raising Interest Rates: The central bank, such as the Federal Reserve in the
United States, increases the policy interest rates (e.g., federal funds rate). Higher
interest rates make borrowing more expensive for businesses and individuals,
reducing spending and investment.
b) Open Market Operations (OMO): The central bank sells government
securities in the open market, absorbing excess funds from the banking system.
This reduces the money supply and the amount of funds available for lending.
c) Increasing Reserve Requirements: The central bank can raise the reserve
requirement, which is the percentage of deposits that banks must hold as reserves.
A higher reserve requirement reduces the amount of money banks can lend,
limiting the money supply.
d) Forward Guidance: The central bank can communicate its intention to
raise interest rates or take other contractionary measures in the future. This
guidance affects expectations and influences current spending and investment
decisions.
e) Currency Appreciation: Higher interest rates can attract foreign capital,
leading to an appreciation of the country's currency. A stronger currency can
reduce export competitiveness, slowing down economic growth.
f) Credit Controls: In some cases, the central bank may impose direct credit
controls, such as restrictions on lending to specific sectors or tightening credit
standards, making it harder for individuals and businesses to obtain loans.
Limitations of restrictive monetary policy
Time Lag: One significant limitation of contractionary monetary policy is the time
lag between its implementation and its actual effects on the economy. Monetary policy
measures, such as changes in interest rates or money supply, may take several months
to have a full impact on economic Click icon to add picture
activity and inflation. During this lag, economic
conditions may change, making the intended policy less effective or even
counterproductive.
Uncertainty and Expectations: Economic agents, including businesses and
consumers, base their decisions on expectations of future economic conditions. The
success of a contractionary monetary policy relies on these agents accurately
anticipating and adjusting their behavior in response to the policy. If expectations are
misaligned or uncertain, the policy may not have the desired effect.
Limitations of restrictive monetary policy
Debt Levels and Financial Fragility: High levels of household and corporate debt can reduce
the effectiveness of contractionary policy. Higher interest rates can strain heavily indebted
entities, potentially leading to defaults, financial instability, and a negative impact on the overall
economy. Click icon to add picture
Credit Availability and Credit Channels: Changes in policy rates may not directly translate
into changes in lending rates that consumers and businesses face. Banks and other financial
institutions might not fully pass on the rate changes to borrowers, affecting the effectiveness of
monetary policy in influencing borrowing and spending.
Global Economic Conditions: The effectiveness of contractionary monetary policy can be
affected by global economic conditions, particularly in open economies. Economic
interdependencies and trade relationships mean that changes in domestic monetary policy may
be offset by changes in international economic conditions.
CONCLUSION
We can conclude that monetary policy plays an important role
in increasing the growth rate of the economy by influencing the
cost and availability of credit, by controlling inflation and
maintaining equilibrium Clickinicon to add
thepicture
balance of payments.
Expansionary monetary policy causes an increase in bond
prices and a reduction in interest rates. It also lowers interest
rates which lead to higher levels of capital investment.

Self assessment exercise
1. Discuss the expansionary monetary policy.
2. Explain the restrictive monetary policy.

UNIT THREE: LAG IN MONETARY POLICY
One of the limitations of monetary policy in countercyclical
manner is the existence of time lags. It takes time for the
monetary authority to realize the need for action and its
recognition, and the takingClick
oficonaction and the effect of the action
to add picture
on economic activity. Friedman define lag as the timing

relation between the resulting monetary series and resulting
series of effects of monetary actions. According to him,
monetary actions affect economic conditions only after a lag
that is both long and variable.
Types of lags
There are three primary types of lags associated with monetary policy:
1. Recognition Lag: Recognition lag is the time it takes for policymakers
to recognize a change in the Click
state of the economy and determine an
icon to add picture
appropriate policy response. Economic indicators, such as GDP growth,

unemployment rates, inflation rates, and other relevant data, provide
information about the economic conditions. However, collecting,
processing, and analyzing this data takes time. Policymakers need to
accurately interpret the data to understand whether intervention is needed
and in what direction (expansionary or contractionary).
2. Implementation Lag: Implementation lag refers to the time it
takes for policymakers to decide on a specific policy action and
actually implement it. Once policymakers identify the need for a
policy change, there are administrative
Click icon to add picture and logistical processes
involved in implementing the policy. For example, in the case of
adjusting interest rates, central banks need to convene meetings,
assess economic conditions, deliberate, and reach a consensus on the
appropriate policy move. The decision-making process can vary in
complexity and duration depending on the structure of the central
bank.
3. Impact Lag (Effectiveness Lag): Impact lag, also known as the
effectiveness lag, is the time it takes for the implemented policy to have
its intended effect on the economy. This lag is associated with the
transmission mechanisms through Click icon towhich
add picture monetary policy affects the
broader economy. Monetary policy works through various channels,
such as interest rates affecting consumption, investment, and borrowing.
These changes in spending, investment, and borrowing then influence
aggregate demand and, consequently, economic growth, employment,
and inflation. The lag occurs because it takes time for these adjustments
to materialize and have a measurable impact on the economy.
Self-Assessment exercise
List and explain the three types of lags.

UNIT FOUR: ROLE OF MONETARY POLICY
IN A DEVELOPING ECONOMY
Monetary policy in an underdeveloped country plays an important
role in increasing the growth rate of the economy by influencing the
cost and availability of credit, by controlling inflation and
maintaining equilibrium in theClickbalance of payments.
icon to add picture
So the principal objectives of monetary policy in such a country are

to control credit for controlling inflation and to stabilize the price
level, to stabilize the exchange rate, to achieve equilibrium in the
balance of payments and to promote economic development.

1. Price Stability and Inflation Control: One of the primary objectives of monetary policy in a
developing economy is to maintain price stability by controlling inflation. Inflation erodes the
purchasing power of individuals and reduces the overall economic welfare. By adjusting interest
rates and the money supply, the central bank aims to keep inflation within a targeted range,
promoting stable prices and economic predictability.
2. Economic Growth and Development: Monetary policy plays a significant role in fostering
economic growth and development. By managing interest rates and credit availability, the central
bank can influence investment and consumption patterns, ultimately stimulating economic
activity. Lower interest rates encourage borrowing for investments, which, in turn, boosts
productivity, job creation, and overall economic growth.
3. Employment Generation: Through the promotion of economic growth, monetary policy
contributes to job creation and reduction of unemployment. Increased investment and economic
activity driven by appropriate monetary measures can generate more employment opportunities,
enhancing the standard of living and reducing poverty in the developing economy.
4. Stabilizing Business Cycles: Monetary policy helps stabilize the business cycle by adjusting
interest rates and liquidity to counter economic downturns and overheating. During a recession
or economic slowdown, central banks can lower interest rates and inject liquidity to stimulate
demand and investment. Conversely, during an economic boom, they can tighten monetary
policy to cool down an overheated economy and prevent bubbles.
5. Exchange Rate Stability: Monetary policy influences exchange rates, which are vital for trade
and economic stability. Central banks can intervene in foreign exchange markets to influence the
value of their currency, ensuring a stable exchange rate. This stability is crucial for businesses
engaged in international trade and for attracting foreign investment.
6. Financial Market Stability: Monetary policy helps maintain stability in financial markets by
influencing interest rates and liquidity conditions. Well-managed monetary policy can help
prevent financial crises and ensure that the financial system remains sound, facilitating efficient
allocation of resources and fostering investor confidence.
7. Capital Formation:
By regulating interest rates and liquidity, monetary policy influences the
level of capital formation in the economy. Adequate capital formation is
crucial for sustaining economic Click
growth and
icon to add picturedevelopment, as it leads to the
creation of productive assets and infrastructure.

8. Encouraging Savings and Investments:
Monetary policy can incentivize savings and investments by adjusting
interest rates. Higher interest rates can encourage savings, while lower rates
can stimulate investments. A balance is required to promote both savings and
investments for a healthy and growing economy.
UNIT FOUR: Limitations of Monetary Policy in
Less Developing Countries.
The experience of underdeveloped countries reveals that
monetary policy plays a limited role in such countries. The
following arguments are given in support of this view
1. Large Non-Monetized Sector
There is a large non-monetized sector which hinders the
success of monetary policy in such countries. People mostly
live in rural areas where barter is practiced. However, monetary
policy fails to influence this large segment of the economy.
2. Underdeveloped Money and Capital Markets
The money and capital markets are undeveloped. These markets
lack in bills, stocks and shares which limit the success of monetary
policy. Click icon to add picture
3. Large Number of NBFIs

Non-bank financial intermediaries like the indigenous bankers
operate on a large scale in such countries but they are not under the
control of the monetary authority. This factor limits the effectiveness
of monetary policy in such countries.
4. High Liquidity
The majority of commercial banks possess high liquidity so that they are not influenced by
the credit policy of the central bank. This also makes monetary policy less effective.
5. Foreign Banks
In almost every underdeveloped country foreign owned commercial banks exist. They also
render monetary policy less effective by selling foreign assets and drawing money from
their head offices when the central bank of the country is following a tight monetary policy.
6. Small Bank Money
Monetary policy is also not successful in such countries because bank money comprises a
small proportion of the total money supply in the country. As a result, the central bank is
not in a position to control credit effectively.
Self Assessment exercise
Explain the principal instruments of monetary policy.
Discuss the role of monetary policy in an economy
What are the limitations of monetary
Click icon to add picture policy in less
developing countries.

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MONETARY POLICY:

UNIT TWO: EXPANSIONARY MONETARY

UNIT 3: LAG IN MONETARY

UNIT 4 ROLE OF MONETARY POLICY IN

MONETARY POLICY & THEORY 3

MONETARY POLICY & THEORY 5

MONETARY POLICY & THEORY 6

MONETARY POLICY & THEORY 7

MONETARY POLICY & THEORY 8

MONETARY POLICY & THEORY 10

MONETARY POLICY & THEORY 12

2.Money Supply and Bank Reserves:

MONETARY POLICY & THEORY 13

4. Impact on the Bond Market:

MONETARY POLICY & THEORY 15

MONETARY POLICY & THEORY 17

MONETARY POLICY & THEORY 18

Encouraging Responsible Behavior:

MONETARY POLICY & THEORY 20

2.Impact on Borrowing Costs:

3.Influence on Money Supply:

MONETARY POLICY & THEORY 21

Click icon to add picture

MONETARY POLICY & THEORY 22

Click icon to add picture

MONETARY POLICY & THEORY 23

Ineffectiveness at the Zero Lower Bound: When interest rates are

Currency Depreciation: Lower interest rates, particularly when maintained over

MONETARY POLICY & THEORY 28

MONETARY POLICY & THEORY 34

MONETARY POLICY & THEORY 35

on economic activity. Friedman define lag as the timing

appropriate policy response. Economic indicators, such as GDP growth,

Click icon to add picture

MONETARY POLICY & THEORY 40

So the principal objectives of monetary policy in such a country are

MONETARY POLICY & THEORY 41

creation of productive assets and infrastructure.

3. Large Number of NBFIs

MONETARY POLICY & THEORY 48

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Chapter Six Cont'd

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