Monetary policy
If the interest rates in an economy are held at a level that is too low then inflation will start to take off. This can be disruptive to businesses in addition to destroying people's savings.
It is especially problematic if inflation is high and fluctuating. The resulting uncertainty about future price levels is likely to inhibit economic growth, or, at the very least, penalise those who are not protected against inflation. Unpredictability makes planning very difficult.Yet if interest rates are set at an excessively high level this will inhibit business activity, cause people to put off buying houses and reduce spending in the
shops, leading to a recession with massive job losses. Clearly a society needs an organisation whose task it is to select the appropriate short-term interest rate for the economic conditions it faces: neither too high nor too low. That organisation is the central bank.[35]
More financial literature on Economics.Studio
More on the topic Monetary policy:
- The Conduct of Monetary Policy: Rules Versus Discretion
- Optimal Monetary Policy in the Presence of Stochastic Shocks
- Up to this point in our analysis, we have mostly treated monetary and fiscal variables as exogenous parameters or as determined on the basis of exogenously given policy rules.
- The Theory of Discretionary Monetary and Fiscal Policy
- Conclusion
- Agarwal Vanita. Macroeconomics: Theory & Policy. Pearson,2010. — 408 p., 2010
- The Optimal Taylor Rule
- Conclusion
- Price Adjustment and the Attainment of General Equilibrium
- Brief Contents
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