This document discusses the objectives and transmission mechanisms of monetary policy. It notes that central banks typically aim for price stability through interventions in financial markets to influence interest rates and liquidity. Monetary policy impacts the real economy through interest rate channels, as policy actions influence short-term rates and ultimately long-term rates that impact consumption, investment, and aggregate demand. Central banks can conduct open market operations, adjust reserve requirements, and set bank rates to expand or contract the money supply and thereby influence short-term interest rates in financial markets.
Role of Monetary Policy and Central Banking in Combating Inflation Andishga...Amir Fassihi
Andishkadeh of Economics
Saeed Abtahi, DBA
Sunday October 13th, 2013 (4pm-7pm)
UCLA (Neuroscience Research Building)
635 Charles E Young Dr
Andishgah Lecture Series
The Role of Central Bank and Monetary Policy in Iran
The Iranian economy is in dire shape, with inflation running rampant as a direct consequence of the previous administration’s flawed economic policies. It is generally accepted that taming inflation requires a strong, transparent, independent and accountable central bank that has at its disposal the appropriate financial instruments to transmit monetary policy.
This presentation will:
v Address the current practices of monetary policy and central banking in Iran; and
v Provide a number of recommendations that Iranian authorities should consider to prevent Iran’s economy from edging toward disastrous hyperinflation.
Saeed Abtahi, DBA is an international investment banker, with 33 years of working experience in Europe, U.S., and the Middle East advising multi-national corporations, banks, government agencies and sovereign wealth funds in capital markets, corporate finance, asset management and strategic advisory works.
He is a resident of Los Angeles and consults his clients in California, Kuwait, and Abu Dhabi.
Saeed Abtahi earned his B.S. in Electrical Engineering and M.S. in Operation Research from Massachusetts Institute of Technology, and DBA in Finance from Harvard Business School.
Role of Monetary Policy and Central Banking in Combating Inflation Andishga...Amir Fassihi
Andishkadeh of Economics
Saeed Abtahi, DBA
Sunday October 13th, 2013 (4pm-7pm)
UCLA (Neuroscience Research Building)
635 Charles E Young Dr
Andishgah Lecture Series
The Role of Central Bank and Monetary Policy in Iran
The Iranian economy is in dire shape, with inflation running rampant as a direct consequence of the previous administration’s flawed economic policies. It is generally accepted that taming inflation requires a strong, transparent, independent and accountable central bank that has at its disposal the appropriate financial instruments to transmit monetary policy.
This presentation will:
v Address the current practices of monetary policy and central banking in Iran; and
v Provide a number of recommendations that Iranian authorities should consider to prevent Iran’s economy from edging toward disastrous hyperinflation.
Saeed Abtahi, DBA is an international investment banker, with 33 years of working experience in Europe, U.S., and the Middle East advising multi-national corporations, banks, government agencies and sovereign wealth funds in capital markets, corporate finance, asset management and strategic advisory works.
He is a resident of Los Angeles and consults his clients in California, Kuwait, and Abu Dhabi.
Saeed Abtahi earned his B.S. in Electrical Engineering and M.S. in Operation Research from Massachusetts Institute of Technology, and DBA in Finance from Harvard Business School.
Foreign Exchange Intervention and Currency Crisis (The Case of Korea During P...K Developedia
Title: Foreign exchange intervention and currency crisis
Sub Title: The case of Korea during pre-crisis period
Material Type: Report
Author: Kang, Sung-Kyung
Publisher: KDI School of Public Policy and Management
Date: 2000
Pages: 69
Subject Country: South Korea (Asia and Pacific)
Language: English
File Type: Documents
Original Format: pdf
Subject: Economy; Macroeconomics
Holding: KDI School of Public Policy and Management
Impact of Macroeconomic Factors on Share Price Index in Vietnam’s Stock Markettheijes
This paper investigates the macroeconomic determinants of share price in the stock market of Vietnam. The investigation was conducted by using a VECM econometric methodology and revealed thatVietnam’s stock market prices are chiefly determined by economic activities: market price index, inflation, money supply and exchange rate. An increase in market price index and money supply makes share price, while the increase of inflation (CPI) and exchange rate reduces share price. The study’s result showed that Vietnam’s stock market can be replaced by investors of foreign currency (USD), while the exchange rate tends to rise.
(1) An Overview of the NSFR Liquidity Framework; (2) Building NSFR into FTP Logic; (3) Integrating NSFR into FTP and Liquidity Management Systems; (4) FTP and NSFR: Strategic Considerations
The dangers of macro-prudential policy experiments: initial beliefs under ada...GRAPE
Presentation from ASSA2021
The paper studies the implication of initial beliefs and associated confidence under adaptive learning. We first illustrate how prior beliefs determine learning dynamics and the evolution of endogenous variables in a small DSGE model with credit-constrained agents, in which rational expectations are replaced by constant-gain adaptive learning. We then examine how discretionary experimenting with new macroeconomic policies is affected by expectations that agents have in relation to these policies. More specifically, we show that a newly introduced macro-prudential policy that aims at making leverage counter-cyclical can lead to substantial increase in fluctuations under learning, when the economy is hit by financial shocks, if beliefs reflect imperfect information about the policy experiment.
Foreign Exchange Intervention and Currency Crisis (The Case of Korea During P...K Developedia
Title: Foreign exchange intervention and currency crisis
Sub Title: The case of Korea during pre-crisis period
Material Type: Report
Author: Kang, Sung-Kyung
Publisher: KDI School of Public Policy and Management
Date: 2000
Pages: 69
Subject Country: South Korea (Asia and Pacific)
Language: English
File Type: Documents
Original Format: pdf
Subject: Economy; Macroeconomics
Holding: KDI School of Public Policy and Management
Impact of Macroeconomic Factors on Share Price Index in Vietnam’s Stock Markettheijes
This paper investigates the macroeconomic determinants of share price in the stock market of Vietnam. The investigation was conducted by using a VECM econometric methodology and revealed thatVietnam’s stock market prices are chiefly determined by economic activities: market price index, inflation, money supply and exchange rate. An increase in market price index and money supply makes share price, while the increase of inflation (CPI) and exchange rate reduces share price. The study’s result showed that Vietnam’s stock market can be replaced by investors of foreign currency (USD), while the exchange rate tends to rise.
(1) An Overview of the NSFR Liquidity Framework; (2) Building NSFR into FTP Logic; (3) Integrating NSFR into FTP and Liquidity Management Systems; (4) FTP and NSFR: Strategic Considerations
The dangers of macro-prudential policy experiments: initial beliefs under ada...GRAPE
Presentation from ASSA2021
The paper studies the implication of initial beliefs and associated confidence under adaptive learning. We first illustrate how prior beliefs determine learning dynamics and the evolution of endogenous variables in a small DSGE model with credit-constrained agents, in which rational expectations are replaced by constant-gain adaptive learning. We then examine how discretionary experimenting with new macroeconomic policies is affected by expectations that agents have in relation to these policies. More specifically, we show that a newly introduced macro-prudential policy that aims at making leverage counter-cyclical can lead to substantial increase in fluctuations under learning, when the economy is hit by financial shocks, if beliefs reflect imperfect information about the policy experiment.
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it is a full information for the students according to thrir examinations point of view about monetary policy and objectives,nature, instruments of monitary policy
This presentation explains various monetary instruments being adopted by the Reserve Bank of India. It also shows their impact on stock market. It also show the statistic trend of inflation, repo rate, reverse repo rate, etc in India.
1. Monetary policy objectives and relationship
with financial markets
•
•
•
•
•
•
There is a general consensus among academics and central
bankers that monetary policy is best geared to achieve price
stability.
In some countries, central banks have additional mandates such as
ensuring full employment, maximising growth and promoting
financial stability.
In order to meet these objectives, central banks intervene in
financial markets to ensure that short-term interest rates (and
exchange rates) and liquidity are maintained at appropriate levels,
consistent with the objectives of monetary policy.
Thus, monetary policy and financial markets are linked intrinsically.
Central banks conduct monetary policy by directly and indirectly
influencing financial market prices.
Financial market prices reflect the expectations of market
participants about future economic developments. These
expectations, in turn, provide valuable information to central banks
in setting the optimal course of monetary policy in the future.
2. •
•
•
•
The transmission process from monetary policy to financial markets
and finally to the real economy is typically triggered through the use of
monetary policy instruments (reserve requirements, open market
operations, policy rates and refinance facilities).
For most central banks with floating exchange rates, the monetary
policy instrument is a short-term interest rate.
Under fixed exchange rate regimes, a particular exchange rate serves
as the instrument.
Similarly, under the monetary targeting regime, the operating target is
the quantity of central Bank money in the banking system
.
3. Monetary Policy Transmission Process
• The interest rate channel is the primary mechanism of
monetary
policy
transmission
in
conventional
macroeconomic models.
• An increase in nominal interest rates, translates into an
increase in the real rate of interest and the user cost of
capital.
• These changes, in turn, lead to a postponement in
consumption or a reduction in investment spending
thereby affecting the working of the real sector, viz.,
changing aggregate demand and supply, and eventually
growth and inflation in the economy. See the fig. on next
slide.
4.
5. • The money market forms the first and foremost link in the
transmission of monetary policy impulses to the real
economy.
• Policy interventions by the central bank along with its
market operations influence the decisions of households
and firms through the monetary policy transmission
mechanism. The key to this mechanism is the
monetary base.
• Among the constituents of the monetary base, the most
important constituent is bank reserves, i.e., the claims that
banks hold in the form of deposits with the central bank.
• Therefore, the daily functioning of a modern economy
and its financial system creates a demand for central
bank reserves which increases along with an
expansion in overall economic activity
6. How Central Bank Conducts Monetary
Policy!
• The most common procedure by which central banks
influence the outstanding supply of bank reserves is
through “open market operations” – that is, by buying or
selling government securities in the market.
• When a central bank buys (sells) securities, it credits
(debits) the reserve account of the seller (buyer) bank.
• This increases (decreases) the total volume of reserves
that the banking system collectively holds.
• Expansion (contraction) of the total volume of reserves in
this way matters because banks can exchange reserves
for other remunerative assets.
7. Open Market Operations
• Since reserves earn low interest, and in many
countries remain unremunerated, banks typically
would exchange them for some interest bearing
asset such as Treasury Bill or other short-term
debt instruments.
• If the banking system has excess (inadequate)
reserves, banks would seek to buy (sell) such
instruments.
• If there is a general increase (decrease) in
demand for securities, it would result in increase
(decline) in security prices and decline
(increase) in interest rates.
8. Open Market Operations
• Hence, an “expansionary” (contractionary) open market
operation creates downward (upward) pressure on shortterm interest rates not only because the central bank
itself is a buyer (seller), but also because it leads banks
to buy (sell) securities.
• In this way, the central bank can easily influence interest
rates on short-term debt instruments.
• In the presence of a regular term structure of interest
rates such policy impulses get transmitted to the
longer end of the maturity spectrum, thereby
influencing long-term interest rates, which have a
bearing on household’s consumption and savings
decisions and hence on aggregate demand.
9. Reserve Requirements : CRR, SLR
• There are alternative mechanisms of achieving
the same objective through the imposition of
reserve requirements and central bank
lending to banks in the form of refinance
facilities (Bank Rate).
• Lowering (increasing) the reserve requirement,
and, therefore, reducing (increasing) the
demand for reserves has roughly the same
impact as an expansionary (contractionary) open
market operation, which increases (decreases)
the supply of reserves creating downward
(upward) pressure on interest rates.
10. Bank Rate
• Similarly, another way in which central banks can
influence the supply of reserves is through direct lending
of reserves to banks.
• Central banks lend funds to banks at a policy rate (Bank
Rate), which usually acts as the ceiling in the short-term
market.
• Similarly, central banks absorb liquidity at a rate which
acts as the floor for short-term market interest rates.
• This is important, since injecting liquidity at the ceiling
rate would ensure that banks do not have access to
these funds for arbitrage opportunities whereby they
borrow from the central bank and deploy these funds in
the market to earn higher interest rates.
• Similarly, liquidity absorption by the central bank has to
be at the floor rate since deployment of funds with the
central bank is free of credit and other risks.
11. Repo and Reverse Repo
• It
is used when Central Bank wants to
manipulate liquidity in the banking system for
extremely short period
• Repo: This is a repurchase agreement to sell the
government securities (TBs) with an agreement
to buy back at later date. This is the short term
Borrowing rate.
• Reverse Repo: Similarly the purchase of
securities today with an agreement to sell back
at later date is called Reverse Repo and decides
the Short term Lending rate.
12. The Reverse Way of Doing The
Same !!!
• While this mechanism outlines how central banks can
influence short-term interest rates by adjusting the
quantity of bank reserves, the same objective can be
achieved by picking on a particular short-term
interest rate and then adjusting the supply of
reserves commensurate with that rate.
• In many countries, this is achieved by targeting the
overnight inter-bank lending rate and adjusting the level
of reserves which would keep the interbank lending rate
at the desired level.
• Thus, by influencing short-term interest rates, central
banks can influence output and inflation in the economy,
the ultimate objectives of monetary policy.