...Is Inflation in India Structural or Monetary? Inflationary Situation: It’s a situation in the economy where ‘too much money is chasing too few goods’. So when the products & services available are less as compared to the money supply in the money market, the economy witnesses an uptrend in their prices in order to adjust for the larger quantum of money chasing them. Structural Policy: A Structural policy is a term used for the whole of the politico-economic measures for the organization of the structure of the national economy of a state. A Structural policy is further categorized as * Regional structural policy, which supports the settlement of industries in assisted areas by measures of the investment assistance * Sparkling wine-oral structural policy, those by subsidies and tax preferences Monetary Policy: It refers to the process by which a country’s central bank controls money supply, often through the manipulation of interest rates, with the aim of promoting economic growth and stability while maintaining relatively stable prices and low unemployment. Monetary policy is either expansionary (mainly by lowering interest rates to combat a recession or a recessionary situation) or contractionary (raising interest rates to control inflation). Comment: Inflation in India is primarily structural and less monetary in outlook. Some data points supporting this point of view are as below: * Food Inflation – As it has been seen historically, the dietary patterns...
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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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...ECONOMIC of INDONESIA “INFLATION” Created by: Gabriella Vidiananda 0810233017 Ira Ardella Putri 0810233023 Gilang Pradipta 0810233018 Accounting Department Faculty of Economic University of Brawijaya 2011 INFLATION Definition of inflation We often hear the word inflation (level of inflation) on television, in newspapers, magazines, and various other media. Inflation is one of economic symptom that has much attention from the economic expert. In many cases inflation is unbeneficial symptom and the people who has fix salary is the most harm. In principle, the definition or meaning inflation was widely noted scientists and experts in their field. With regard to the definition or meaning of inflation in according to experts, there are some following, in according to Winardi (1995: 235) definition or meaning of inflation is the period in which the purchasing power of the Monetary Union down. Inflation can occur when the amount of money or deposits in circulation is larger than the amount of goods and services. This is often supported by the loss of public confidence in the country vis-à-vis the domestic currency, which then cause symptoms that apply to exchange money to items. According to Bodie, and Marcus (2001: 331), the definition or meaning of inflation is the value at which the price level of goods and services in general has increased. According to Weston and Copeland (1998: 250), definition of inflation is the state of the economy that experienced...
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...Inflation in India: Docile or Defiant? Executive Summary ASSOCHAM study finds that inflation was structural in nature rather than being episodic. Farm prices are less responsive to the RBI’s monetary policy whereas manufactured goods prices were found to be more responsive to the policy. Manufactured goods prices are showing new dynamics: a) Highest price rise in primary and upstream products b) A moderate rise in intermediate goods prices c) Least hikes in prices of finished and consumer products In the light of these features and trends in inflation, ASSOCHAM suggests four pronged anti-inflationary package. These includes Structural Correction for Structural Inflation: This calls for a comprehensive action plan for the farm sector, involving among other measures, a programme for a “Horticultural revolution” for increasing productivity of fruits and vegetables, fish and poultry. Controlling form inflation is a joint responsibility of the union Government and RBI. Only monetary policy adjustment will not correct such trend price rises. 2 Hence, RBI need not raise policy rates every time form prices are rising, as analysis shows farm price are not responding to monetary policy changes. Manufactured good inflation is showing for greater responsiveness to monetary policy changes. RBI should concentrate more on controlling these prices Going into the disaggregated and Sectoral price behavior of manufacturing goods, we find the dynamics of change is more in upstream...
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...hours $ 4 99 More infoBuy Share Share with Twitter Share with Facebook Share with LinkedIn Search 150 million articles from 12,000 publications Social Sciences > Economics Essays on monetary policy and currency unions: The case of the East African Community ProQuest Dissertations and Theses, 2011 Dissertation Author: John M. M Ssozi Abstract: Efficient conduct of monetary policy in a currency union demands that partner states have similar business cycles, inflation convergence and strong economic ties. The first essay investigates inflation convergence, which is important for a number of reasons: avoiding inflation bias and is an indicator of structural similarities. The essay goes beyond the traditional pairwise unit root tests and applies an unobserved dynamic factor model to test asymmetry in inflation variation. Convergence is measured by the percentage of variation in inflation that is common across countries. The results suggest inflation convergence in the EAC. The main contribution of this essay is the use of an unobserved component model to estimate the degree of inflation convergence in the EAC. The second essay investigates the degree of business cycle synchronization and the evolution of synchronization over time. Inflation divergence is an indicator of structural differences between countries....
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...email: helpdoc@rbi.org.in वेबसाइट May 2, 2013 Macroeconomic and Monetary Developments in 2012-13 The Reserve Bank of India today released the Macroeconomic and Monetary Developments in 2012-13. The document serves as a backdrop to the Monetary Policy Statement 2013-14 to be announced on May 3, 2013. Highlights: Overall Outlook Macro-financial risks require cautious monetary policy stance ahead • In view of macro-financial risks that stay significant, headline inflation remaining above the threshold and consumer price inflation remaining high, the space for action for 2013-14 remains very limited. If some of the risks come to fore, policy re-calibration may become necessary in either direction. • Slow-paced recovery is likely later in 2013-14, contingent on improved governance and concerted action to resolve structural bottlenecks, especially in infrastructure sector. Output gap is likely to reduce, but remain negative. • Headline inflation is likely to remain range-bound in 2013-14, with some further moderation in H1 due to subdued producers' pricing power and falling global commodity prices, before it increases somewhat in H2 largely due to base effects. • Reserve Bank's survey of outside professional forecasters shows anticipation of a modest recovery with growth in 2013-14 at 6.0 per cent from 5.0 per cent and average WPI inflation to moderate to 6.5 per cent from 7.3 per cent. Surveys show that inflation expectations have moderated slightly, while...
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...Four main target of governments: Low unemployment – lots of people in work Low and steady inflation – prices and wages fairly stable ← Steady and sustainable economic growth (%change in GDP) – the economy to grow a little bit each year A positive balance of payments – to export more than we import Two other possible: ← To reduce inequality in the country – to redistribute income and wealth in order to help the poor To protect the environment – to avoid pollution and congestion What is Monetary Policy? Monetary Policy involves changes in the base rate of interest to influence the rate of growth of aggregate demand, the money supply and ultimately price inflation. Monetarist economists believe that monetary policy is a more powerful weapon than fiscal policy in controlling inflation. Monetary policy also involves changes in the value of the exchange rate since fluctuations in the currency also impact on macroeconomic activity (incomes, output and prices) Changes in short term interest rates affect the spending and savings behaviour of households and businesses over time and therefore feed through the circular flow of income and spending. The transmission mechanism of monetary policy works with variable time lags depending on the interest elasticity of demand for different goods and services – e.g. the demand for interest-sensitive consumer goods and services bought on credit or the demand for capital investment from private sector businesses. Because...
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...ECO1011S Macroeconomics I Tutorial Solution 11 (Week 12) HOMEWORK (26 marks) 1. If inflation cannot occur without money, does this mean that changes in the money stock always causes changes in inflation and that controlling the money stock is the only way to control inflation? (6) This question needs to be simplified to: What is the connection between money supply and inflation? This is the situation of monetary validation. Assume the economy starts off at some stable position (E0) along the LRAS (at Y*), but there is a shock to the system such that Aggregate demand increases (rightward shift). The economy is now in an unstable position since an inflationary gap opens up. If market forces are left to operate: the inflationary gap implies an excess demand for factors of production and over time the wage rate will start to increase. This increases the cost of production so the SRAS curve shifts leftward. If market forces were left to operate over time the economy would move to a new equilibrium back at Y* but now at a higher price level. This new equilibrium would be stable. If the interest rate is fixed at some level there is then another force operating in the economy through the money market. The higher price level caused by the original outward shift of the AD curve implies a higher demand for money. So Qd (of money) shifts outwards. So long as the interest rate is fixed the monetary authorities must allow money supply to expand outwards to meet the new Qd of money. This...
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...Inflation, Unemployment, and the Monetary Policies in the United States Macroeconomics is all about the economy on a large, or aggregate scale. That means a focus on the portions of the economy that deal with inflation, GDP and how it changes over time, recessions, expansions, the business cycle, and government policies that influence the macro economy. The articles I have chosen focus on all of these ideas, but have a more direct focus on it inflation, unemployment, and monetary policy. Jerome Powell is the head of the Federal Reserve (Fed) which is responsible for Monetary Policy in the United States. The Fed’s decisions have a direct correlation on the macro economy. The Fed and their management of the United States is a difficult task,...
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...Demerits of Monetary policy: Monetary policy has several advantages over the two alternative types of stabilizers—fiscal policy and direct controls (price controls and rationing). Generally, historical evidence does reflect that Pakistan has been a high inflation and high interest economy given its inherent structural weaknesses. The role and effectiveness of monetary policy appears more visible in the 2000s when financial sector reforms started bearing fruits in terms of a more market based money and foreign exchange markets. Political independence: Monetary policy is highly impersonal. Monetary policy interferes very little with the freedom of the market, although market imperfections sometimes intensify the effects of policy upon particular sectors of the economy. A tight monetary policy cuts down the rate at which total spending can rise. Monetary policy is flexible. The Federal Open Market Committee usually meets about every six weeks, reaches a decision, and acts on that decision immediately. Focus on Inflation: Unlike many other countries, our monetary policy seems to reach beyond its underlying fundamentals. In its latest monetary policy announcement, the State Bank of Pakistan (SBP) has focused more on inflation than other factors. It can be observed that inflation, which is a fiscal-driven phenomenon, cannot be controlled through monetary measures. A tight monetary policy does not assure the curbing of inflation, even when it is the prime goal of the monetary policy...
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...ROLE OF AGGREGATE DEMAND AND SUPPLY SHOCKS IN A LOW-INCOME COUNTRY: EVIDENCE FROM BANGLADESH Omar H.M.N. Bashar Deakin University, Australia ABSTRACT This paper explores the relative role of aggregate demand and supply shocks in affecting the output level and inflation rate in a low-income country vulnerable to various economic shocks. The study uses Bangladesh data, and following Cover et al (2006), employs a modification of the BlanchardQuah (BQ) approach, in which the two shocks are allowed to be correlated. Strong evidence is found for the hypothesis that aggregate demand and supply shocks are interrelated in Bangladesh. For the case in which causality is assumed to be running from demand to supply shocks, it was found that an independent supply shock plays significant role for fluctuations in inflation, which was absent in the standard BQ model. The results suggest that a tightening of monetary policy may lead to an adverse effect on the long-run growth potential and some supply-side policies may be required to supplement contractionary monetary policy in combating inflation in Bangladesh. JEL Classifications: E3, O11, C32 Keywords: Aggregate Demand and Supply Shocks, Blanchard-Quah Decompositions, Monetary Policy, Bangladesh. Corresponding Author’s Email Address: omar.bashar@deakin.edu.au INTRODUCTION Analyzing the role of aggregate demand and supply shocks in an...
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...Canada responsible for conducting fiscal and monetary policy, name the Department of Finance and the Bank of Canada. What are the roles of each and what are each responsible for obtaining? What are the responsibilities of each institution and what tools do they have at their disposable to impact the economy? Can you say that their objections are in tandem with one another or due they sometimes conflict? Please explain. tools available to the Federal government in managing the economy -- Fiscal and Monetary Policy Legislative Overview In Canada, the monetary policy is conducted by the Bank of Canada in which the government owned organization function with considerable independence from the federal government but is accountable to the parliament. Monetary policy in Canada is set by non-elected officials at Bank of Canada. Other decisions regarding the level of government revenue and expense is part of fiscal policy which is made by the Government of Canada with the approval of the parliament of Canada, as result monetary and fiscal policies are governed independent of each other (Frigon, 2010). The role of monetary policy is to preserve the value of capital by keeping inflation low, stable and foreseeable. This allows Canada to make spending and investment decisions with confidence, encourages long-term investment in Canada and contributes to better job openings and greater productivity with a better standard of living. Monetary policy in Canada has three characteristics:...
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...Monetary Policy in Vietnam: Alternatives to Inflation Targeting Le Anh Tu Packard (tu.packard@gmail.com) Fifth Draft July 2007 Paper prepared for the Political Economy Research Institute (PERI) at the University of Massachusetts, Amherst with support from the United Nations Department of Economic and Social Affairs (UNDESA). Earlier versions of this paper were presented to the May 2005 CEDES/Amherst Research Conference in Buenos Aires and the July 2005 Da Nang Symposium on Continuing Renovation of the Economy and Society. Financial support for this project has been provided by the Ford Foundation, UNDESA, and the Rockefeller Brothers Foundation. My gratitude and thanks go to two anonymous referees, Gerald Epstein, Erinc Yeldan, Jaime Ros, Lance Taylor, Per Berglund, and Phillipe Scholtes for their insightful comments and valuable ideas, and also to numerous colleagues in Vietnam including Dang Nhu Van for their helpful feedback. I am responsible for all remaining errors and omissions. List of Acronyms and Abbreviations ASEAN BFTV BIDV CEPT CIEM CMEA CPRGS DAF FDI FIE GC GDI GDP GNP GSO HDI IMF JV NEER ODA PE PER PRGF PRSC RCC REER ROSCA SBV SOCB SOE UCC UNDP VCP VLSS WTO Association of South East Asian Nations Bank for Foreign Trade of Vietnam Bank for Investment and Development of Vietnam Common Effective Preferential Tariff Central Institute for Economic Management Council of Mutual Economic Assistance Comprehensive Poverty Reduction and Growth Strategy Development...
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...Inflation – Impacts On The Economic Growth Of Nigeria By DoubleGist | Published: June 5, 2013 Inflation – Impacts On The Economic Growth Of Nigeria Inflation – Impacts On The Economic Growth Of Nigeria A macroeconomics problem facing Nigeria, and the most disturbing, is the problem of inflation. As a result of its growing rate, Nigerian government is concerned about its impacts on her economic growth. To place an order for the Complete Project Material, pay N5,000 to GTBank (Guaranty Trust Bank) Account Name – Chudi-Oji Chukwuka Account No – 0044157183 Then text the name of the Project topic, email address and your names to 08060565721. Many authors have written on Impacts of inflation on Nigerian economy, but the authors have different views because inflation analysis, nevertheless, one thing common is that all the authors agree that inflation has Impact on Nigerian economic growth. Samuelson (1973), defines inflation as “a general rising prices for breeds, cars, haircut, rising wages, rent etc. Onwukwe (2003), on his side defines inflation as “a significant and sustained rise in the general price level or a declining value of the monetary units. The problem created by the rising prices of goods and services has become two difficult for government to solve. During inflationary period, fixed amounts of money buy less quantity of goods and services. The real value of money is drastically reduced i.e the purchasing power of consumers are reduced. The Impact of rapid...
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...macroeconomic stability in that area? The Euro-zone is an economic and monetary union that currently has 17 members. These 17 members have established the Euro as their official currency, which has as main consequence that the monetary policies are under the command of the European Central Bank. The main advantage of this is that they have a fixed exchange rate, so they don´t have to face the international volatility of the currency market. However as their monetary policies depend on the European Central Bank, loosing effectiveness in their own fiscal and monetary policies, making it harder to face economic crises, especially when you have a weak economic framework, which was the case of Spain. If all the economies where homogeneous then it would be easier to apply the policies, but as each member is very different we have a problem due to the macroeconomic disparity among the members. If the recession occurs at the same time, it is easier to develop the monetary policies, and even if in some countries there is recession and in others not, the asymmetry can be accommodated through the members, however due to the huge disparities among countries it is not that easy. The recent crises have increased the awareness of the huge disparities that we can find in the members. These differences, which relays on the diversity of the members, have risen the question of the viability of the Eurozone. Although the monetary unification is a very ambitious plan it has many difficulties, given...
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