Posts Tagged economic
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:
- Open Market Operations
- Discount Rates
- 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.
Tags: bond fund, borrow money, Business, economic, economy, Employment, fiscal, fiscal policy, government, Home Loan, Home Loans, Import, inflation, inflation rate, interest rate, interest rates, investment, Loans, market, monetary, monetary policy, money, money supplyRelated posts
Do Monetary Handcuffs Restrain Leviathan? Fiscal Policy in Extreme Exchange Rate Regimes
This paper studies fiscal policy in countries that have chosen an extreme monetary stance. We think of a country as having an extreme monetary policy if it is in either a currency board or a common currency area. In much of our analysis, we distinguish between multilateral currency unions (such as the East Caribbean Currency Area, or ECCA) and countries that have unilaterally adopted the currency of an anchor country (such as Panama).
It is possible to motivate our analysis in several ways. A number of countries are considering whether to abandon national monetary sovereignty and unilaterally adopt the money of another country, including Mexico and Argentina; Ecuador, Guatemala, and El Salvador are already proceeding with dollarization. In Europe, 12 countries have already abandoned national monetary discretion within the Economic and Monetary Union (EMU). More generally, there has been much discussion of the “disappearing center” of exchange rate regimes; countries are said to have a choice of either freely floating or going to an extreme monetary stance.
Tags: Associate, countries, currency, economic, economic and monetary union, exchange rate, exchange rate regime, exchange rate regimes, exchange rates, fiscal, fiscal policies, fiscal policy, fixed exchange rate, fixed exchange rates, government, Import, inflation, models, monetary, monetary policy, monetary union, money, Special, StudiesRelated posts
The real effects of monetary policy in the European Union: what are the differences?
The advent of European Economic and Monetary Union (EMU) scheduled for the beginning of 1999 has sparked off a debate about the best way of conducting monetary policy in the euro area. One dimension of this discussion concerns the preferred framework for conducting monetary policy-that is, about whether the European Central Bank (ECB) ought to target inflation, monetary aggregates, or the exchange rate. A second is about differences in the effects of changes in monetary policy on activity in different EU countries, related to differences in the transmission mechanism.
Opinions have tended to be divided on the question of the preferred monetary policy framework for the euro area, although recently, there appears to be a consensus emerging in favor of informal inflation targeting, accompanied by monitoring of monetary aggregates and other indicators. In any event, policy discussions have in general tended to focus less on questions relating to the real effects of monetary policy in the EU than on the issue of the appropriate framework for conducting monetary policy in the euro area. This may be partly due to the fact that many of the issues pertaining to identification of the monetary transmission mechanism tend to be econometric rather than economic. Nevertheless, a proper understanding of possible differences in the effects of changes in monetary policy on activity among the EU countries is crucial for an appreciation of the difficulties that may arise from the implementation of a unified monetary policy throughout the euro area. And this issue is the main focus of the paper.
Tags: contractionary, countries, Course, economic, economic and monetary union, european economic and monetary union, european exchange rates, european union, exchange rate, exchange rates, Gates, germany, Import, inflation, inflation targeting, interest rate, monetary, monetary policy, monetary transmission mechanism, monetary union, Studies, Study, transmission mechanismRelated posts
