...Rational of the study 01 Objective of the study 02 Scope of the study 02 Methodology of the study 02 Limitations of the study Chapter- 01 01 02 Body of the term paper Monetary Policy Reason of publishing 04 Types of Monetary Policy 05 Monetary Policy in Bangladesh 06 Tools & Strategy of Monetary Policy 06 Major tools used by Bangladesh Bank 07 Policy Target 12 Limitations of Monetary Policy 13 Findings of the study Chapter-03 03 Scope & Objective of Monetary Policy Chapter- 02 03 14 Conclusion 14 Bibliography 14 Chapter- 01 Introduction “Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment. Monetary theory provides insight into how to craft optimal monetary policy. It is referred to as either being expansionary or contractionary, where an expansionary policy increases the total supply of money in the economy more rapidly than usual, and contractionary policy expands the money supply more slowly than usual or even shrinks it. Expansionary policy is traditionally used to try to combat unemployment in a recession by loIring interest rates in the hope that easy credit will entice businesses into expanding. Contractionary policy is intended...
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...The importance of credibility for the conduct of monetary policy and inflation control Theoretical model and empirical analysis for Brazil under inflation targeting Gabriel Caldas Montes1* Alexandre Curi ** Abstract This paper raises the following hypotheses: to the extent that the monetary authority successively reaches the inflation target and credibility increases, expectations will have more influence on inflation and, thus, the efforts of the monetary authority to reach the inflation target will decrease. Hence, the goal of this work is twofold: 1) a theoretical model is developed to show that when the monetary authority is committed to the goal of price stability, the gain of credibility not only acts by producing a better result in terms of inflation, but also it reduces the volatility of the basic interest rate, and; 2) based on the Brazilian economy, the article provides empirical evidence that the gain of credibility is crucial to reduce the volatility of the basic interest as well as the inflation rate. The findings suggest that credibility plays a key role for the conduct of monetary policy and inflation control. Keywords: inflation targeting, credibility, interest rate, inflation JEL classification: E43, E52, E58 * Fluminense Federal University, Department of Economics, National Council for Scientific and Technological Development (CNPq), Brazil. Rua Tiradentes, 17, Ingá, Niterói, Rio de Janeiro, CEP: 24210-510. gabrielmontesuff@yahoo.com.br ** Fluminense...
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...The Impact of Monetary Policy on Economic Growth and Inflation in Sri Lanka C.Amarasekara 1 Abstract Based on a vector autoregressive (VAR) framework and utilising both recursive and structural specifications, this study analyses the effects of interest rate, money growth and the movements in nominal exchange rate on real GDP growth and inflation in Sri Lanka for the period from 1978 to 2005. The results of the recursive VARs are broadly in line with the established empirical findings, especially when the interest rate is considered the monetary policy variable. Following a positive innovation in interest rate, GDP growth and inflation decrease while the exchange rate appreciates. When money growth and exchange rate are used as policy indicators, the impact on GDP growth contrasts with established findings. However, as expected, an exchange rate appreciation has an immediate impact on the reduction of inflation. Interest rate innovations are persistent, supporting the view that the monetary authority adjusts interest rates gradually, while innovations in money growth and exchange rate appreciation are not persistent. Several puzzling results emerge from the study: for most sub-samples, inflation does not decline following a contractionary policy shock; innovations to money growth raises the interest rate; when inflation does respond, it reacts to monetary innovations faster than GDP growth does; and exchange rate appreciations almost always lead to an increase in GDP growth. The...
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...MP A R Munich Personal RePEc Archive Impact of Interest Rates on Islamic and Conventional Banks: The Case of Turkey Erge¸ Etem Hakan and Arslan Bengul Gulumser c ¨ ¨¨ January 2011 Online at http://mpra.ub.uni-muenchen.de/29848/ MPRA Paper No. 29848, posted 4. April 2011 06:17 UTC Impact of Interest Rates on Islamic and Conventional Banks: The Case of Turkey Etem Hakan Ergeça* and Bengül Gülümser Arslanb Abstract Identifying the impact of the interest rates upon Islamic banks is key to understand the contribution of such institutions to the financial stability, designing monetary policies and devising a proper risk management applicable to these institutions. This article analyzes and investigates the impact of interest rate shock upon the deposits and loans held by the conventional and Islamic banks with particular reference to the period between December 2005 and July 2009 based on Vector Error Correction (VEC) methodology. It is theoretically expected that the Islamic banks, relying on interest-free banking, shall not be affected by the interest rates; however, in concurrence with the previous studies, the article finds that the Islamic banks in Turkey are visibly influenced by interest rates. JEL classification: G21; E52 Keywords: Interest-free banking, monetary policy I. Introduction Islamic banks1 are defined as financial institutions that rely on the principle of Profit and Loss Sharing (PLS) with the entrepreneurial partners in their relevant banking...
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...You Decide Business Economics - GM545 In the case presented the U.S. economy has fallen into a severe and deep recession that economic analyst believes will persist for at least another year. The unemployment rate has risen to levels not seen in over 20 years as the current unemployment rate is 8% and is expected to continue to rise. The inflation rate is -2.4 percent, suggesting that deflation has occurred since prices are falling. Deflation happens when consumers quit buying things, and prices start going down as the demand for goods decrease combined with a decrease in the money supply. Overall there is a decrease in aggregate demand. As is the situation with the case presented – often times the adjusting mechanism forces of the free market alone are not sufficient enough to pull an economy out of recession or to shorten its length. Action by way of fiscal and monetary policies should be taken to expand the economy again and increase aggregate demand. Monetary and fiscal policy are two ways in which governments attempt to achieve or maintain full levels of employment, price stability, and economic growth. Monetary policy is the responsibility of the Federal Reserve System, which uses three main instruments: open-market operations, the discount rate, and reserve requirements to manipulate the money supply and interest rates. Fiscal policy decisions are made by the President and Congress and entail the use of government spending and taxation to influence the economy...
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...ECONOMIC ESSAY The Economy of the United Kingdom Tran Duc Trung CDLYMY tranductrung2291@gmail.com TABLE OF CONTENTS Economic Policy of the UK…………………………………………………. 1.Introduction 2 2.Main (a) Overview of the UK economic 2 (b) Monetary policy and Fiscal Policy 3 (c) The purpose of Fiscal Policy 5 (d) Monetary Policy – Reflation and Deflation 10 (e) Policy of UK in 2011 12 3. Conclusion 16 4. References 17 1. Introduction. Unfortunately, UK entered its worst recession since World War 2 in 2008. However the UK economy grew by 1.2 per cent in the second quarter of 2010 and 0.8 per cent in the third, the fastest consecutive growth in over 10 years, accelerating from the 0.4 per cent growth recorded in the first quarter of 2010 and 0.4 per cent growth in fourth quarter of 2009.The U.K. economy has grown 2.8% since the end of the recession; the UK economy has recovered twice as fast as expected so far. The UK is currently ranked fourth in the world (and first in Europe) in the World Bank's Ease of Doing Business Index. In the third quarter of 2010 the trade deficit in real terms decreased to £9.7 billion from £10.9 billion. Exports of goods and services rose 2.2 percent whilst imports rose 0.7 percent. The GDP implied deflator rose by 3.0 percent compared with the third quarter of 2009. Compensation of employees at current prices rose by 0.3 percent in the latest quarter and is 2.9 per cent higher than...
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...2012 The Monetary Transmission Mechanism in Nigeria: A Sectoral Output Analysis Philip Ifeakachukwu, NWOSA (Correspondence author) Department of Economics, Accounting and Finance Bells University of Technology, Ota, Ogun State, Nigeria Tel: 234-082-470-7555 E-mail: nwosaphilip@yahoo.com Muibi Olufemi, SAIBU Dept of Economics, Obafemi Awolowo University Ile-Ife, Osun State, Nigeria Tel: 234-085-338-1914 Received: May 31, 2011 doi:10.5539/ijef.v4n1p204 Abstract E-mail: omosaibu@yahoo.com Published: January 1, 2012 Accepted: July 5, 2011 URL: http://dx.doi.org/10.5539/ijef.v4n1p204 The study investigated the transmission channels of monetary policy impulses on sectoral output growth in Nigeria for the period 1986 to 2009. Secondary quarterly data were used for the study while granger causality and Vector Auto-regressive Method of analysis were utilized. The results showed that interest rate channel was most effective in transmitting monetary policy to Agriculture and Manufacturing sectors while exchange rate channel was most effective for transmitting monetary policy to Building/Construction, Mining, Service and Wholesale/Retail sectors. The study concluded that interest rate and exchange rate policies were the most effective monetary policy measures in stimulating sectoral output growth in Nigeria. Keywords: Sectoral output, Monetary transmission channels, Granger causality, VAR model 1. Introduction The channels through which monetary policy impulse is being...
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...and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, there is a decline in the real value of money and purchasing power. Inflation is an indicator of a country’s macro economic stability and provides important insight on the state of the economy and the sound macroeconomic policies that govern it. A stable inflation not only gives a nurturing environment for economic growth, but also uplifts the poor and fixed income citizens who are the most vulnerable in society. A numerous supply side and demand side factors could be responsible for this surge in inflation. Inflation can be a result of shocks to the supply of certain food items and to world oil markets. Rising oil prices can pose risk of increase in prices of almost all other commodities of the consumer basket. Such supply-side shocks are very volatile and can cause large fluctuations in food and oil prices. The effects of this on overall inflation at times can be so excessive that these cannot be countered through demand management, including monetary policy. The demand side...
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...DOES MONETARY POLICY INFLUENCE ECONOMIC GROWTH IN PAKISTAN? Haji Saif Ullah (Author) Email: hajisaif@live.com Muhammad Ashraf (coordinator) Department of Management Sciences University Of Gujrat, Gujrat ABSTRACT This study examines the impact of monetary policy on economic growth in Pakistan. The study uses time-series data covering the range of 1991 to 2011.The effects of stochastic shocks of each of the endogenous variables are explored using Error Correction Model (ECM). The study shows that Long run relationship exists among the variables. Also, the core finding of this study shows that inflation rate, exchange rate and external reserve are significant monetary policy instruments that drive growth in Pakistan. It is therefore recommended that the establishment of primary and secondary government bond markets that can also increase the efficiency of monetary policy and reduce the government’s need to rely on the central bank for direct financing. Keywords: Policy instruments, Economic Growth, GDP, Money supply, monetary policy INTRODUCTION The aim of this study is to examine the impact of monetary policy on economic growth. Economic growth is an important macroeconomic objective for any country. Monetary policy has direct relation with economic growth. Folawewo and Osinubi (2006) stated monetary policy as the arrangements which are planned to control supply of money in a country. In many countries the basic aims of the monetary policy are to stabilize prices...
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...General Business Environment (Monetary and Fiscal Policies) THE INFLUENCES OF BI RATES AND EXPORT TAXES ON INDONESIAN PALM OIL INDUSTRY Prof. Wihana Kirana Jaya, M.Soc.Sc., Ph.D. by: Nanang Suko Sadono 13/361118/PEK/19272 Batch 63 International MAGISTER OF MANAGEMENT UNIVERSITAS GADJAH MADA YOGYAKARTA 2014 THE INFLUENCES OF BI RATES AND EXPORT TAXES ON INDONESIAN PALM OIL INDUSTRY 1. INTRODUCTION Indonesia is the biggest producer of Crude Palm Oil (CPO) in the world which produced more than 25 million tons in 2012 and more than 200 trillion rupiahs in foreign exchange. The development of this industry, therefore, is important for the development of economy in Indonesia, as one tool to deal with problems faced such as poverty. This industry is also crucial in supporting the government in anticipating crisis of energy in the future due to the decreasing number of gas and oil over time. The increasing needs of renewable energy as the substitute of petroleum has also driven the demand of pam oil in international market. This high demand has led the price of palm oil in international market become higher. The high international price then persuade domestic producers to market their products to other countries, and this is a logic consequence since the companies as business entities always want to maximize their profit. The problem arise when all companies are forgetting the domestic market. Cooking oil, which is the end product of CPO, can be said...
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...A Study of Monetary Policy Impact on Stock Market Returns (With Special Reference to Nifty and Bank Nifty) A PROJECT REPORT Submitted by Chintan Divetia (1011416026) Submitted to Mr. Raviraj Gohil Assistant Professor Department of Finance In partial fulfilment for the award of the degree of POST GRADUATION DIPLOMA IN MANAGEMENT in Finance Shanti Business School, Shela, Ahmedabad. ACKNOWLEDGEMENT It was a great opportunity for me to work with Sharekhan Ltd., pioneers in the field of Stock Market. I am extremely grateful to all those who have shared their expertise and knowledge with me and without whom the completion of this project would have been virtually impossible. Firstly, I would like to thank my Company Mentor Mrs. Raina Vashi who has been a constant source of inspiration for me during the completion of this project. I would also like to thank Mr. Henal Bardoliwala, Relationship Manager of Sharekhan Ltd., for supporting me to complete my project. I am thankful to all staff of Sharekhan Ltd for their valuable support and cooperation during the entire tenure of this project. I thank my faculty guide Mr. Raviraj Gohil who helped me out at every critical situation that i faced in my project and gave us his valuable advice to solve problems. EXECUTIVE SUMMARY I feel great pleasure by presenting this project. As a student of PGDM of ‘Shanti Business School Ahmedabad’, there is a subject of partial training followed...
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...such potholed fluctuations in the economic growthThe volatility of the nature of prices is a major source of concern in all countries since 1970s. The issue is of a more serious nature in the developing countries where inflation in foreign countries known as “imported inflation” is seen to be driving “local/domestic inflation”; making domestic policies to control inflation ineffective. Similarly, in Pakistan, the domestic price level rose from the mid-1970s. The exchange rate started depreciating continuously from the early 1980s. Continuous devaluation of currency and inflation in the 1980s seems to suggest a correlation between the two variables.The studies by Rana and Dowling (1983) suggest that foreign inflation is the most influencing factor in explaining the change in local price level in nine less-developed countries of Asia during the period 1973-79. This study suggests that these countries cannot exercise much control over domestic inflation, however, the policies of their major trading partners (through exchange rate) had a significant impact on their domestic prices. Cooper (1971) and Krugman and Taylor (1978) have also studies this relationship.This research paper will provide the empirical evidence regarding the relationships between foreign exchange reserves and inflation, focusing on the period between 1993-2010. We will use the Ordinary Least Square model to determine the long run relationship.Our...
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...Abstract The study investigates the effects of Monetary policy on some significant economic variables like exchange rate, gross domestic product and inflation using data from 1960-2010 to analyze the results. We have taken the data in percentage form. A great number of empirical studies on the relationships of monetary policy and inflation are available and most of these have analyzed the effectiveness of monetary policy in controlling inflation in Pakistan. In this paper we have presented the effectiveness of monetary policy it’s framework and data estimation through which we reached to the conclusion that monetary shocks do affect real variables like GDP, inflation and exchange rate. Pakistan has been estimated by a number of researchers and it has been recognized that monetary phenomenon are responsible for the high levels of inflation. Keywords: Monetary Policy, Inflation, Exchange rate, Economic Growth, Gross domestic product and Pakistan. Introduction This paper attempts to examine the long-run effects of Monetary Policy on several economic variables such as inflation, economic growth that is gross domestic product and exchange rate in Pakistan. For this purpose, analysis have been employed for the period 1960-2010. As monetary policy actions affect policy variables with a significant gap and with high degree of unpredictability and insecurity, it is key to predict the probable impact and degree of monetary policy actions on the real variables. Usually, policy makers and...
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...of Monetary Changes on Relative Agricultural Prices TA Asfaha1 and A Jooste2 Abstract Relative change in agricultural prices determines farmers` investment decisions, productivity and income. Thus, understanding the factors that influence agricultural prices is fundamental for sustainable growth in this sector and the rest of the economy. This paper investigates the short- and long-run impacts of monetary policy changes on relative agricultural prices in South Africa by employing Johansen cointegration analysis and the Vector Error Correction Model (VECM) respectively. The results of Johansen cointegration analysis reject the long-run money neutrality hypothesis which suggests that the rate of increase in prices is not unit proportional to the rate of increase in money supply. On the other hand, the results of the dynamic relationships provide evidence of agricultural prices being overshot. Therefore, when a monetary shock occurs, the agriculture sector will have to bear the burden of adjustment, increasing farmers’ financial vulnerability. Consumers also have to absorb short-run price volatility and overshooting of prices which in turn impacts on their ability to manage their cash flow optimally; this could be a substantial challenge in poor households. Due to the linkages between monetary policy variables and relative agricultural prices, it is recommended that agricultural policy makers and monetary authorities work closely in designing and implementing monetary policy in the...
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...|CONTENTS | |THEORY COURSE: | |Title sheet [Program, Course Code - Course Name, Credit Structures, Pre-Requisite and Co-Requisite, Instructor’s Web-Link | |Address (Moodle), Name of Instructor, Division, and School] | |Official Time Table of the course | |Approved course syllabus signed by Instructor & Program chair | |Objective and Outcome Mapping | |Lesson Plan | |Assessment Scheme and Schedule | |Model Question Paper (Semester End Examination (SEE)) | |Lectures Slides, Tutorials and other Learning Resource provided (See Annexure 1) | |Assignments / Course Projects ...
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