scholarly journals Money Supply as the Target of the Central Bank

2014 ◽  
Vol 14 (1) ◽  
pp. 116-136
Author(s):  
Andrzej Jędruchniewicz
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Money Supply ◽  
Point Of View ◽  
Main Trend ◽  
Demand For Money ◽  
Intermediate Target ◽  
The Third ◽  
Production And Consumption ◽  
Shape Changes

Abstract The main purpose of the article is a critical analysis of the monetary policy strategy that is based on the adoption of money supply as an intermediate target. The analysis is conducted from the perspective of the theory of the Austrian school. The first part of the article presents an influence of the supply of money on changes of categories in economy according to mainstream theories of economics. The second part discusses the essence of the strategy of monetary policy using money supply as an intermediate target from the point of view of the main trend in economics. It is demonstrated that in order to use it, two elementary conditions must be met: the function of demand for money must be at least relatively stable and the central bank must practically shape changes in the money supply at the planned level. The third part is of key importance for the purpose of this article. It involves the criticism of Friedman’s principle, i.e. a constant increase in money supply as a monetary strategy. According to the Austrian theory, an increase in the quantity of money which is not financed by voluntary savings separates the time structure of production and consumption. Thus, after the period of prosperity there a collapse in production must take place. It is also pointed out that the crisis can be postponed only when the quantity of money increases at an ever faster rate.

Endogeneity of Monetary Policy Reaction Fun~tion: An Experience from Pakistan's Economy

1991 ◽  
Vol 30 (4II) ◽  
pp. 931-941
Author(s):  
M. Aynul Hasan ◽  
Qazi Masood Ahmed
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Money Supply ◽  
Relative Effectiveness ◽  
Reaction Function ◽  
Standard Result ◽  
Policy Variable ◽  
Target Values ◽  
Monetary Policy Reaction Function ◽  
Policy Reaction Function

Monetary policy, in general, refers to those steps taken by the Central Bank to achieve such broader objectives of the economy as growth, employment, external balance and price stability through changes in the money supply, interest rates and credit policies. The money supply thus created by the Central Bank should be in response to the changes in key macroeconomic target variables such as GNP, balance of payments, inflation, internal debt and unemployment. Indeed, a properly estimated monetary policy reaction function can provide useful information regarding such matters as to whether the Central Bank, in fact, has been systematically accommodating to the changes in the target variables. The reaction function can also provide insight into the question as to what should be the relevant indicators of the monetary policy. In addition, as argued by Havrilesky (1967), it may also play a crucial role in the formulation of long-term monetary policy strategy. The other important consideration in the development of a monetary policy reaction function pertains to the endogeneity of the monetary policy. As pointed out by Goldfeld and Blinder (1972), if a policy variable responds to the lagged (or expected) target values, then considering such a policy variable as exogenous would not only introduce the problem of misspecification but will also produce serious biases in the parameters estimated from those models. In particular, if the monetary policy variable happens to be strongly influenced by target variables, then the standard result of the relative effectiveness of the monetary policy vis-a-vis fiscal policy can be questionable on the grounds of reverse causation problem.

Digital Money, Liquidity, and Monetary Policy (originally published in July 1997)

First Monday ◽  
2005 ◽  
Author(s):  
Aleksander Berentsen
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Money Supply ◽  
Banking System ◽  
Central Banks ◽  
Electronic Payment ◽  
Regulatory Policies ◽  
Digital Money ◽  
Payment Mechanisms ◽  
Retail Payments

The term digital money refers to various proposed electronic payment mechanisms designed for use by consumers to make retail payments. Digital money products have the potential to replace central bank currency, thereby affecting the money supply. This paper studies the effect of replacing central bank currency on the narrowly defined stock of money under various assumptions regarding regulatory policies and monetary operations of central banks and the reaction of the banking system.

scholarly journals Monetary Policy and Nigeria’s Economy: An Impact Investigation

2017 ◽  
Vol 9 (11) ◽  
pp. 218
Author(s):  
Micheal Chidiebere Ekwe ◽  
Amah Kalu Ogbonnaya ◽  
Cordelia Onyinyechi Omodero
Keyword(s):  
Monetary Policy ◽  
Private Sector ◽  
Central Bank ◽  
Money Supply ◽  
Substantial Reduction ◽  
Bank Lending ◽  
Series Data ◽  
Major Objective ◽  
Lending Rate ◽  
The Impact

The major objective of this study is to empirically analyze the impact of monetary policy on the economy of Nigeria. To achieve this major objective, the study made use of broad money supply (M2) and credit to the private sector (CPS) as the independent variables explaining the dependent variable which is the Gross Domestic Product (GDP). The time series data employed cover the period of 1996 to 2016 and have been collected from the Central Bank of Nigeria Statistical Bulletin. The statistical tool used in this study is the multi regression and student t-test with the aid of statistical package for social sciences (SPSS) to analyze the impact of the individual explanatory variables on the economy. The result indicates that the monetary policy in Nigeria does not have significant impact on the economy. At 5% level of significance, the broad money supply (M2) is 0.36 > 0.05 while the CPS shows 0.22 > 0.05. The result proves that the broad money supply has not been properly regulated and the bank lending rate to the private sectors so high that the economy has been adversely affected. The study therefore, recommends that the Central Bank of Nigeria should put every machinery in place to ensure that the monetary policy is geared towards economic growth through substantial reduction of bank lending rate to the private sector and proper regulation of broad money supply.

Epilogue

2017 ◽  
Author(s):  
Pierre L. Siklos
Keyword(s):  
Monetary Policy ◽  
New Zealand ◽  
Central Bank ◽  
Interest Rates ◽  
Central Banks ◽  
Best Interests ◽  
Small Open Economies ◽  
The Third ◽  
The United Kingdom ◽  
The Eu

The manuscript for this book was largely written during 2015 and 2016. It was completed approximately two months before the last U.S. elections, but shortly after the referendum in the United Kingdom to exit the EU ended with a decision in favor of Brexit. As this is written, early in 2017, monetary policy conditions have changed little, with the Fed the only major central bank that has raised interest rates and only the third time since the end of 2008. Many other central banks, especially in small open economies (e.g., Canada, New Zealand, Australia), are either leaving monetary policy conditions unchanged or show a bias toward further easing if this in their best interests. At the more systemically important central banks, the talk has also shifted away from the necessity of additional loosening and in the direction of standing pat, with the hope that the future will perhaps bring about a long-awaited, but very gradual, raising of policy rates....

scholarly journals The Research on the Money Supply of Central Bank Digital Currency

2018 ◽  
Vol 2 (2) ◽  
pp. 27
Author(s):  
Yuxuan Chen ◽  
Kejie Zhou ◽  
Wenhao Yang
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Money Supply ◽  
Third Party ◽  
Digital Currency ◽  
The World ◽  
The Impact ◽  
The Imf

Currently, the only central bank digital currencies (CBDC) in the world is Venezuela’s currency—Petro. Nowadays, the IMF, BIS, and major countries have conducted a lot of research on CBDC. It’s an urgent issue for the central bank to issue CBDC, determine and formulate the circulation of CBDC and the issuance speed, and supervise it. Therefore, establishing ARMA and VARs by sorting out literature, the paper uses the characteristics of CBDC--cash, and similarities with third-party payment in terms of payment to determine the circulation of CDBC by third-party payment users and currency in circulation. The model calculates and predicts the speed of circulation of digital currency. The issuance of CBDC will accelerate the circulation of money. In this regard, we will explore the impact of money supply on monetary policy and make relevant recommendations.

scholarly journals Keynesian Macroeconomics without the LM Curve

2000 ◽  
Vol 14 (2) ◽  
pp. 149-170 ◽  
Author(s):  
David Romer
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Policy Analysis ◽  
Central Bank ◽  
Money Supply ◽  
Alternative Model ◽  
Baseline Model ◽  
Short Run ◽  
Interest Rate Rule

Changes in both the macroeconomy and in macroeconomics suggest that the IS-LM-AS model is no longer the best baseline model of short-run fluctuations for teaching and policy analysis. This paper presents an alternative model that replaces the assumption that the central bank targets the money supply with an assumption that it follows a simple interest rate rule. The resulting model is simpler, more realistic, and more coherent than IS-LM-AS, not just in its treatment of monetary policy but in many other ways. The paper also discusses other alternatives to IS-LMAS.

The Response of the European Central Bank to the Current Pandemic Crisis: Monetary Policy and Prudential Banking Supervision Decisions

2020 ◽  
Vol 17 (3-4) ◽  
pp. 231-256
Author(s):  
Christos V. Gortsos
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Financial Stability ◽  
European Central Bank ◽  
Point Of View ◽  
Banking Supervision ◽  
European Central ◽  
Policy Measures ◽  
Systematic Point

Immediately after the outbreak of the current pandemic crisis, the EU developed a (rather) consistent strategy, by taking measures in order to deal with health emergency needs, support economic activity and employment, preserve monetary and financial stability and prepare the ground for recovery; these contain a combination of government fiscal stimuli (with extensive resort to the principle of solidarity), emergency liquidity and monetary policy measures and measures relating to financial stability. After briefly reviewing all these measures from a systematic point of view, the present article further analyses the role of the European Central Bank (ECB) during the first phase of this crisis, both in its capacity as a monetary authority within the Eurosystem and in its capacity as prudential banking supervisory authority within the Single Supervisory Mechanism (SSM), with particular emphasis on the treatment of non-performing loans (NPLs). Its specific contribution to financial macro-prudential oversight within European Systemic Risk Board (ESRB) is also highlighted.

scholarly journals Nexus of Money Function and Its Effect on Inflation Rate in Thailand and Indonesia

2018 ◽  
Vol 7 (3.21) ◽  
pp. 67
Author(s):  
Rudy Badrudin ◽  
. .
Keyword(s):  
Monetary Policy ◽  
Regression Analysis ◽  
Central Bank ◽  
Money Supply ◽  
Financial Market ◽  
Inflation Rate ◽  
Security Market ◽  
Inflation Target ◽  
Demand Deposits

This study aims to investigate the development function of money. At the beginning, function of money is a barter between two commodities, C and C'. Then this becomes C-M-C' when the money is once introduced. The M-C-M' occurs when a businessman utilizes the money (M) to produce commodity (C) and resells it to generate more money (M'). Finally, the trading process of M - M' shows the capital or financial market, like the money or security market. The development of the function of money is shown by the changes of the money supply that measured with the inflation rate. This study contributes to advise the central bank in Thailand and Indonesia in managing the role of the central bank's credibility in achieving the inflation target and the proposed rules on monetary policy. Based on the data of 1990-2015 and using ANOVA and the regression analysis (α = 5%) the results show that 1) there is a significantly difference between the currency outside, demand deposits, and quasi-money; 2) the currency outside and the demand deposits in-significantly affects on the inflation rate; 3) the quasi money in-significantly affects and significantly affects on the inflation rate in Thailand and Indonesia.  

scholarly journals Mnożnik kreacji pieniądza – pojęcie, ograniczenia i krytyka

Ekonomia ◽  
2019 ◽  
Vol 25 (1) ◽  
pp. 35-54
Author(s):  
Michał Kresak
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Money Supply ◽  
Commercial Banks ◽  
Economic Education ◽  
Quantitative Easing ◽  
Price Inflation ◽  
Money Multiplier ◽  
Modern Economy ◽  
Money Creation

Money multiplier — the concept, limitations and criticismThe article presents the money creation process in the modern economy, including the role of the central bank and commercial banks in this process. The concept of money multiplier is described and set in the context of Fed’s monetary policy since 1970s. Special attention is paid to the decrease of the M1 multiplier below the value of one, which accompanied the quantitative easing after the crisis arousal in 2008. Then, the main constraints are mentioned of commercial banks in the process of money creation impeding the full utilization of the multiplier potential: bank profitability and competitiveness, risk of bank runs, demand for currency, limitations concerning credit collaterals and those resulting from monetary policy, prudential regulations, and the behaviors of bank clients. The paper also reports on arguments critical toward the multiplier approach and suggests to perceive the money supply in the modern economy as an endogenously determined phenomenon: first, commercial banks grant as many credits thus creating money as they can owing to the market situation; then, they turn to the central bank to provide reserves. The latter provides reserves monetary base as the lender of last resort, aiming to control the interest rate, and not money quantity itself. The conclusions are significant for monetary policy and economic education, as the endogenous approach to money supply can explain why the quantitative easing, contrary to some concerns, did not automatically translate into a considerable increase of credit expansion and price inflation.

scholarly journals Demand for Real Money Balances by the Business Sector: An Econometric Investigation

2000 ◽  
Vol 39 (4II) ◽  
pp. 857-873
Author(s):  
Abdul Qayyum
Keyword(s):  
Monetary Policy ◽  
Money Supply ◽  
Policy Instruments ◽  
Monetary Economics ◽  
Business Sector ◽  
Crucial Importance ◽  
Demand For Money ◽  
Real Money

Monetary economics provides one of the important tools, that is monetary policy, to deal with the macroeconomic problems of the economy. It is concerned with the supply of money and the demand for money. It is often assumed that the money supply is exogenously determined by the authorities and the demand for real money is determined by the market. The demand for money is of crucial importance in the conduct of monetary policy. It helps to understand macroeconomic activities and to prescribe appropriate policy instruments to deal with macroeconomic problems. The effectiveness of the monetary policy, however, depends on the shape and stability of the estimated demand for money function.

Sign in / Sign up

Export Citation Format

Share Document