18 Facts About Monetary policy

Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing or the money supply, often as an attempt to reduce inflation or the interest rate, to ensure price stability and general trust of the value and stability of the nation's currency.

Monetary policy is a modification of the supply of money, i e "printing" more money, or decreasing the money supply by changing interest rates or removing excess reserves.

Monetary policy is referred to as being either expansionary or contractionary.

Expansionary policy occurs when a monetary authority uses its procedures to stimulate the economy.

An expansionary Monetary policy maintains short-term interest rates at a lower than usual rate or increases the total supply of money in the economy more rapidly than usual.

Contractionary Monetary policy maintains short-term interest rates greater than usual, slows the rate of growth of the money supply, or even decreases it to slow short-term economic growth and lessen inflation.

Monetary policy is associated with interest rates and availability of credit.

Instruments of monetary policy have included short-term interest rates and bank reserves through the monetary base.

Monetary policy was considered as an executive decision, and was generally implemented by the authority with seigniorage .

The purpose of monetary policy was to maintain the value of the coinage, print notes which would trade at par to specie, and prevent coins from leaving circulation.

Nominal anchor for monetary policy is a single variable or device which the central bank uses to pin down expectations of private agents about the nominal price level or its path or about what the central bank might do with respect to achieving that path.

Monetary policy regimes combine long-run nominal anchoring with flexibility in the short run.

Different types of policy are called monetary regimes, in parallel to exchange-rate regimes.

The degree to which local monetary policy becomes dependent on the anchor nation depends on factors such as capital mobility, openness, credit channels and other economic factors.

Short-term effects of monetary policy can be influenced by the degree to which announcements of new policy are deemed credible.

In particular, when an anti-inflation Monetary policy is announced by a central bank, in the absence of credibility in the eyes of the public inflationary expectations will not drop, and the short-run effect of the announcement and a subsequent sustained anti-inflation Monetary policy is likely to be a combination of somewhat lower inflation and higher unemployment .

Second, another specificity of international optimal monetary policy is the issue of strategic interactions and competitive devaluations, which is due to cross-border spillovers in quantities and prices.

Monetary policy is the final outcome of a complex interaction between monetary institutions, central banker preferences and policy rules, and hence human decision-making plays an important role.