Guide on How to Write University Essays, Courseworks, Assignments and Dissertations

Monetary policy and interest rates

Home
Articles Library
Medicine, Psychology and Sociology Articles
Business Articles
Economics Articles
Industry Lifecycle
Marketing Mix
McKinsey 7S Framework
Product Life Cycle
Ansoff Analysis
BCG Growth-Share Matrix
Value Chain
Porter's Generic Strategies
Scenario Planning
PEST analysis
SWOT Analysis
Porter's 5 Forces analysis
Sitemap
Comments about this web site
Favorite Links
How to write an Essay
How to Write the Coursework or Report
How to write the Marketing or Marketing Communications Campaign
How to write the Dissertation
Where to start?
How to choose an area of research
How to define Issue or Argument
How to define Issue or Argument
How and where to review the literature
Research Methods
Dissertation Structure
Some tips to survive your dissertation: some predictable crisis
Important tips to succeed the dissertation
Databases of Academic Journals and Publications; Market Data
Essay Sites
Student Tricks
Exam Preparation Tips
Company-Based Reports
BALANCED SCORECARD
Critical Success Factors
Competitor Analysis
Review

Monetary policy is a procedure which helps the government to manage the circulation of money in the economy. Monetary policy is worked out by the government, central banks or the monetary authorities. The monetary policy along with the fiscal policy governs the money management in an economy (wikepedia2007 [online]). This policy is formulated to attain the economic goals of an economy. Monetary policy saw its independent existence in the 19th century. Earlier, the monetary policy was a part of fiscal policy in most of the nations. But keeping the changing trends of the market, the monetary policy was given its own entity .A monetary policy is formulated keeping in mind the current circulation of money in the economy, short term and long term interest rates, exchange rates, capital inflow of the foreign currency within the nation and etc. (Walsh nd).

 

 

Tools of Monetary Policy (wikepedia2007 [online]):

l        Monetary base: monetary policy can be used to change the amount of money that is circulating with in the economy

l        Discount window lending: the central bank that formulates the monetary policy can change the size of the money that is lent by it in the country

l        Reserve requirements: the monetary policy can regulate the minimum assets that various banks must hold. This changes the amount of cash that the banks can lend in the market

l        Interest rates: the monetary policy increases or decreases the interest rates to tackle the overheated economy or to reduce the state of unemployment with in the nation.

 

Monetary Policy and the Interest rates

The monetary policy is dependent upon the interest rates in an economy. This is the rate at which the money is actually borrowed (wikepedia2007 [online]). Basically, there are two types of monetary policies. The first type is called the expansionary policy. In this type of monetary policy the total circulation of money is increased in the market. This is done by lowering the interest rates (Reddy 2006). Lowered interest rates encourage people to borrow money to start new business. With the reduction of interest rates the capital investments are thereby increased. The expansionary type of monetary policy is thereby applied to combat the problem of unemployment. The lowering of interest rates in a monetary policy lowers the attraction towards the domestic bonds, whereas the foreign bonds become more popular. This in turn lowers the value of the domestic currency. The second type of monetary policy is the contraction monetary policy. In this type of monetary policy, the government hikes the interest rates to reduce the circulation of money in the market. This type is applied when the economy is facing the acute problem of inflation. It is seen that when the interest rates are high, people abstain from borrowing money and thereby the circulation of money in the market can be controlled. Hence, the capital investments are highly reduced. In contrast to the expansionary monetary policy, the domestic bonds gain popularity in comparison to the foreign bonds. This type of monetary policy in turn strengthens the domestic currency. Hence, the interest rates serve as a tool to manage an economy. Depending upon the state of the economy, the policy making authority that are generally referred to as the central bank decide the type of monetary policy that should be applicable for the nation.

 

 

 

References:

 

Monetary Theory and Policy by Carl E Walsh

 

Macroeconomics and Monetary Policy by Y. V. Reddy

 

Wikipedia. (2007). Available: http://wikipedia.com. Last accessed 25 October 2007.

E/F/86. DISSERTATION. MONETARY POLICY OF PAKISTAN

C/E/141. Monetary Policy Committee and Interest Rates

E/E/47. Explain the background to the formation of the “Bretton Woods System”, during the course of its operation did system successful or false?

S/E/84. International Financial Systems: From Bretton Woods to the Present Day Economic World

E/E/34. Role of fiscal and monetary policies in economic growth

P/E/488. Monetary policy of the British government

P/E/368. What if a government announces a proposed increase in its money supply?

P/E/345. Monetarism doctrine: theoretic approaches and influence on UK economy

P/E/307. Theories of business cycles: New Classical model vs. New Keynesian model

P/E/290. Post-war international monetary system

P/E/225. Mundell Ö Fleming Model

S/E/54. Explain in detail the various determinants that imply a link between demand for money and interest rates

C/E/76. The effects of monetary policy on real GDP in the UK and the role of Bank of England in the supply of money

P/E/200. Monetary policy: inflation targeting

P/E/198. Monetary policy: Lucas model and Fischer model

S/E/40. Investigating the European Central Bank's Monetary Policy

P/E/171. Monetary Policy and Nominal and Real Output: Friedmans Argument

C/E/53. Elasticity Model and Devaluation

P/E/150. Equilibrium of Renminbi

S/E/36. "Money Base control would seem to be easy and effective way of pursuing monetary policy". Explain this statement and discuss why it has never been used in any major economy.

P/E/102. Dissertation. China: Monetary and Fiscal Reforms

P/E/89. The Inventory Theoretic Approach to the Transactions Demand for Money

P/E/22. How have interest rates changed over the last thirty years? What affects have these had on the economy and why?

C/E/22. Interest rates. Why is that a central bank has the power to set a particular market interest rate, and what is interest rate policy intended to achieve?

C/E/23. Monetary Policy. Keynes / Monetarist

P/E/36. Examine the main theoretical and policy distinctions between Keynesian and Monetarist / New Classical economists

S/E/13. A discussion of: the principle of Purchasing Power Parity : the relationship between exchange rates, prices and inflation

L/E/11. Evaluate the use of monetary policy as an instrument of economic policy and explain its impact on business.

C/E/13. What do you understand by ámonetary policy rules? Assess whether monetary writerities should follow them.

S/E/15. Monetary Rules (The Taylor Rule) and the conduct of monetary policy

P/F/79. How Monetary Policy can Influence the Stock Market Bubbles

Enter supporting content here