Monetary Policy: Mastering Monetary Policy, Your Key to Financial Wisdom

By Fouad Sabry

What is Monetary Policy

The policy that is adopted by the monetary authority of a nation to impact monetary and other financial conditions in order to achieve broader goals such as high employment and price stability is referred to as monetary policy. The contribution of monetary policy to economic stability and the maintenance of exchange rates that are predictable with respect to other currencies are two further aspects of monetary policy. In today's world, the majority of central banks in rich countries conduct their monetary policy within the framework of inflation targeting. On the other hand, the majority of central banks in developing countries target some type of fixed exchange rate regime with their monetary policies. Targeting the money supply is a third monetary policy technique that was widely used throughout the 1980s. However, its popularity has decreased since then, despite the fact that it is still the official strategy in a number of emerging nations.

How you will benefit

(I) Insights, and validations about the following topics:

Chapter 1: Monetary policy

Chapter 2: Central bank

Chapter 3: Inflation

Chapter 4: Interest rate

Chapter 5: Monetary policy of the United States

Chapter 6: Money supply

Chapter 7: Exchange rate

Chapter 8: Devaluation

Chapter 9: Open market operation

Chapter 10: Foreign exchange reserves

Chapter 11: Money creation

Chapter 12: Impossible trinity

Chapter 13: Mundell-Fleming model

Chapter 14: Plano Real

Chapter 15: Inflation targeting

Chapter 16: Currency intervention

Chapter 17: Exchange-rate flexibility

Chapter 18: Sterilization (economics)

Chapter 19: History of monetary policy in the United States

Chapter 20: Monetary policy of the Philippines

Chapter 21: Fear of floating

(II) Answering the public top questions about monetary policy.

(III) Real world examples for the usage of monetary policy in many fields.

Who this book is for

Professionals, undergraduate and graduate students, enthusiasts, hobbyists, and those who want to go beyond basic knowledge or information for any kind of Monetary Policy.

• Language: English
• Publisher: One Billion Knowledgeable
• Release date: Jan 21, 2024

Book preview

Chapter 1: Monetary policy

Monetary policy is the policy adopted by a nation's monetary authority to control either the interest rate payable for very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money supply, often as an attempt to reduce inflation or the interest rate, to ensure price stability and public confidence in the value and stability of the nation's currency.

Monetary policy is the modification of the money supply, such as printing more money or decreasing the money supply by adjusting interest rates or removing excess reserves. In contrast, fiscal policy uses taxation, government spending, and government borrowing to manage business cycle phenomena like recessions.

Typically, the additional objectives of monetary policy are to contribute to the stability of the gross domestic product, to achieve and maintain low unemployment, and to keep exchange rates with other currencies predictable.

Monetary economics can inform the formulation of optimal monetary policy. In developed countries, monetary policy and fiscal policy are typically formulated separately.

The expansionary or restrictive nature of monetary policy is referred to as expansionary or contractionary monetary policy, respectively.

A monetary authority engages in expansionary policy when it uses its procedures to stimulate the economy. A policy that is expansionary keeps short-term interest rates at a lower rate than usual or increases the total supply of money in the economy at a faster rate than usual. In order to reduce unemployment during a recession, it is customary to lower interest rates in the hope that cheaper credit will encourage businesses to borrow more money and expand. This would increase aggregate demand (the total demand for all goods and services in an economy), which would increase short-term GDP growth (GDP). By increasing the amount of currency in circulation, expansionary monetary policy typically reduces the value of the currency relative to other currencies (the exchange rate), allowing foreign buyers to purchase more with their currency in the country with the devalued currency.

Monetary policy is related to interest rates and credit availability. Through the monetary base, instruments of monetary policy have included short-term interest rates and bank reserves.

Banknotes with a face value of 5000 in different currencies.

(American dollar), Franc Central African CFA, Japanese yen, Italian lira, as well as the French franc)

There were only two types of monetary policy for many centuries: altering coinage or printing paper money. Even though interest rates are now considered a component of monetary authority, they were not typically coordinated with other aspects of monetary policy during this time. Monetary policy was viewed as an executive decision and was typically carried out by the seigniorage authority (the power to coin). With the advent of larger trading networks, it became possible to define the value of a currency in terms of gold or silver and the price of a local currency in terms of foreign currencies. This official price could be legally enforced even if it differed from the market