Monetary Aggregates Play Little Role In The Conduct Of Monetary Policy

In conventional macroeconomic thinking, the money supply is considered the main determinant of long-run inflation. A variety of monetary aggregates have been proposed to measure the money supply. Yet, nowadays, monetary aggregates play little role in monetary policy deliberations at most central banks.

A new study in the Journal of Money, Credit and Banking examines the leading arguments for assigning an important role to tracking the growth of monetary aggregates when making decisions about monetary policy. The analysis finds that none of the arguments provides a compelling reason to assign a prominent role to monetary aggregates.

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Why Adult Education?

Whether one appreciates it or not, to live is to learn on a daily basis. Unless you simply repeat what you have always done, day in and day out, you are encountering at least slightly new situations which require you to think and lean in new and possibly challenging ways. Nothing is quite the same as it was decades ago, whether it be grocery shopping, driving a car, going to the doctor, or making career decisions, financial plans or political choices. The world has changed, and you and I must change with it!

Adult education is based on the idea that there is much more change in life than might meet the eye. Among the most successful people around are those who embrace life conscientiously, learn constantly, and wrestle with life’s challenges and opportunities with an intelligent and thoughtful enthusiasm. In other words, those who “make good sense a way of life.” Some individuals have a natural curiosity and interest in ideas and things new. They enjoy learning and are easily comfortable, even happy, with change and growth. Others, however, seem to learn, grow and change only by being sort of “dragged through” life. They tend to have less of an appreciation of the somewhat exciting dynamics that growth and change present. Theoretically, adult education is good for everyone. But, only those who relish life will likely enjoy it.

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Bond Fundamentals – Monetary Policy and Fiscal Policy

It’s the Federal Reserve Bank that influences the money supply. Three tools are used to implement monetary policy:

  1. Open Market Operations
  2. Discount Rates
  3. Reserve Requirements

Since open market operations is the tool used most, we will cover it. Here’s how it works: When the economy is growing too fast and the Fed is worried about the inflation rate, it will sell government securities from its portfolio to the open market. This decreases bank reserves, which means the money supply decreases. When there are less bank and businesses have to pay the bank more in order to borrow. This discourages consumers and businesses from borrowing. Less borrowing means less spending, which slows the economy and eventually can reduce price pressures.

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