Preview

“Monetary Policy and Inflation Dynamics”

Satisfactory Essays
Open Document
Open Document
336 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
“Monetary Policy and Inflation Dynamics”
Topic –: “Monetary Policy and Inflation dynamics”

Objective - : To study the Monetary policies developed by central bank to control the inflation & it’s implications on Indian economy

Introduction -: Inflation and monetary policy are closely related concepts wherein the latter can be used efficiently to reduce the effect of the former. Inflation is the rise in prices and wages that reduces the purchasing power of money. Monetary policy is the regulation adopted by the central bank, which stabilizes the prices and maximizes production and employment of the country.

Monetary policy is a regulation of a central bank which controls size and growth rate of the money supply. Monetary policy directly influences the interest rates which in turn has a negative relation with the price level. In the face of inflation the central bank of the country generally resorts to a rise in the cash reserve ratio, repo rate and reverse repo rate. The basic idea is to reduce the money supply in the economy. This would reduce aggregate demand. This reduction would again help reduce the price level. Monetary policy is adopted with an objective to make the most of production and employment and consequently stabilize the price level of a country. Monetary policy also regulates the interest rate, availability of credit and at the same time promotes the overall economic growth of a country.

Methodology-: To study implications of following aspects on Indian economy.
• Inflation & its causes
• Monetary policy in India
• Instruments of monetary policy
• Relationship between Monetary policy and Inflation
• Money Demand Function and the Quantity Equation
• Correlation between Inflation rate & CRR
• Monetary policy & banking sector development

References -:
• First Quarter Review of Annual Statement on Monetary Policy for the Year 2008-09 - RBI
• Monetary Policy and Inflation Dynamics - John M. Roberts, Federal Reserve Board, U.S.
• Fiscal Policy and Economic Reforms -


References: -: • First Quarter Review of Annual Statement on Monetary Policy for the Year 2008-09 - RBI • Monetary Policy and Inflation Dynamics - John M. Roberts, Federal Reserve Board, U.S. • Fiscal Policy and Economic Reforms - Y.V.Reddy • Reserve Bank of India Settling for a Slowdown- India Knowledge@Wharton • http://rbi.org.in/ • http://www.indiaonestop.com/ • http://www.economywatch.com/ • http://www.dare.co.in/ • http:/indiabudget.nic.in
Continue Reading
View Writing Issues

You May Also Find These Documents Helpful

  • Satisfactory Essays

    ECO 316 Week 4 Chapter 20 Monetary Policy Tools
    • 394 Words
    • 3 Pages

    ECO 316 Week 4 Chapter 20 Monetary Policy Tools

    In this paperwork of ECO 316 Week 4 Chapter 20 Monetary Policy Tools you will find the next information:…

    • 394 Words
    • 3 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    Explain How Monetary Policy Can Raise the Level of Aggregate Demand in the Short Run. Discuss the Relevance of Your Answer for the Uk Since 2009.
    • 1035 Words
    • 5 Pages

    Explain How Monetary Policy Can Raise the Level of Aggregate Demand in the Short Run. Discuss the Relevance of Your Answer for the Uk Since 2009.

    The first conventional method of monetary policy is open market operations. This means that Central Bank can affect the money supply by purchasing and selling bonds. When the Central Bank buys bonds, it puts money to the circulation. On the contrary when the Central Bank sells bonds, it takes money away. If the money supply becomes more this means that in equilibrium the LM curve will shift to the right which leads to a lower interest rate. If the interest rate is lower, then people are more willing to spend than to save, which in terms increase consumption, hence output will increase.…

    • 1035 Words
    • 5 Pages
    Good Essays
    Read More
  • Better Essays

    Federal Reserve Paper
    • 926 Words
    • 3 Pages

    Federal Reserve Paper

    The monetary policy influences the economy through changes in the banking systems reserves that influence the money supply, credit availability, and interest rates (Colander, 2013, pg. 670). Inflation is the continual rise in the price level. Monetary policy has an important influence on inflation. When the federal funds rate is reduced, the resulting stronger demands for goods and services tend to push wages…

    • 926 Words
    • 3 Pages
    Better Essays
    Read More
  • Better Essays

    The Federal Reserve and Its Monetary Policy
    • 2174 Words
    • 9 Pages

    The Federal Reserve and Its Monetary Policy

    "U.S Monetary Policy." San Franisco Federal Reserve. Federal Reserve Bank of San Francisco, 2004. Web. 10 Dec. 2011.…

    • 2174 Words
    • 9 Pages
    Better Essays
    Read More
  • Good Essays

    Econ209: Macroeconomic Analysis And Applications Paper
    • 1159 Words
    • 5 Pages

    Econ209: Macroeconomic Analysis And Applications Paper

    The 3-credit course covers the basics of economic theory and policy at the level of the whole economy - the macroeconomic level (e.g. national income, economic growth, employment/unemployment, prices & inflation, exchange rates, monetary and fiscal policy). It is aimed at people not currently specializing in economics at the majors or honours level. You should have already done microeconomics (Econ208 or equivalent): if not, see me immediately for advice.…

    • 1159 Words
    • 5 Pages
    Good Essays
    Read More
  • Powerful Essays

    The Federal Reserve: Monetary Policy

    • 2958 Words
    • 12 Pages

    The Federal Reserve: Monetary Policy

    Monetary policy is the key tool used by Federal Reserve to monitor and control US economy. According to Vance Roley and Gordon H. Selon, in their article “Monetary Policy Actions and Long-Term Interest Rates”:…

    • 2958 Words
    • 12 Pages
    Powerful Essays
    Read More
  • Good Essays

    Inflation in Third World Countries
    • 13289 Words
    • 54 Pages

    Inflation in Third World Countries

    8.1 Introduction Stable inflation is recognized as an integral component of sound macroeconomic policies. Over the last decade, with a few exceptions inflation around the world has been at a retreat. More recently, with a pick-up in growth, inflation has started to rise again. Pakistan’s economy exhibited a similar trend with a low inflation environment for last several years with a sharp pick up over the last three years. There are several internal and external factors which have contributed to the recent pick up in inflation in Pakistan. These factors include: a sharp economic recovery resulting in a rise in the levels of income with the consequential surge in domestic demand; the continued pass through effect of the pervious rise in international oil prices; and a sharp pick up in the international prices of essential commodities. Continuously upward adjustments in the administered prices, such as the support prices of wheat, as well as lower than expected production of essential perishable (vegetable and fruits) and non-perishable (pulses, sugar, chilies etc) commodities also contributed to inflation. The government has been vigilant about inflation and has taken various steps to release demand pressures on the one hand and augment supplies of essential commodities on the other. To ease demand pressure the State Bank of Pakistan (SBP) has tightened monitory policy over the last two years and to augment supplies the government has liberalized import regime and allowed imports of several essential items with a view to increasing the supply of those items. In addition, the government increased its imports of item like wheat, pulses and sugar to complement the efforts of the private sector. To provide relief to the common man, the government also increased the scale of operation of the Utility Stores Corporation (USC) which supplies essential commodities such as wheat flour, sugar, pulses and cooking oil/ ghee at less than the market…

    • 13289 Words
    • 54 Pages
    Good Essays
    Read More
  • Powerful Essays

    Money, Inflation & Growth in Pakistan
    • 4379 Words
    • 18 Pages

    Money, Inflation & Growth in Pakistan

    References: Allsopp, C., and D. Vines (2000) The Assessment: Macroeconomic Policy. Oxford Review of Economic Policy 16:4, 1–32. Bilquees, F. (1988) Inflation in Pakistan: Empirical Evidence on the Monetarist and Structuralist Hypotheses. The Pakistan Development Review 27:2, 109–130. Blejer, M. I., A. Ize, A. M. Leone, and S. Werlang (2000) Inflation Targeting in Practice: Strategic and Operational Issues and Application to Emerging Economies. International Monetary Fund. Bordo, M. D., and L. Jonung (1990) The Long Run Behavior of Velocity: The Institutional Approach. Journal of Policy Modeling 12:2, 165–197. Cecchetti, S. G. (2000) Making Monetary Policy: Objectives and Rules. Oxford Review of Economic Policy 16:4, 43–59. Dwyer, G. P., and R. W. Hafer (1999) Are Money Growth and Inflation Still Related? Federal Reserve Bank of Atlanta Economic Review Second October, 32–43. Friedman, M. (1963) Inflation: Causes and Consequences. New York: Asia Publishing House. Friedman, M., and A. J. Schwartz (1982) Monetary Trends in the United States and the United Kingdom: their Relation to Income, Prices, and Interest Rates, 1867-1975. The University of Chicago Press. Goodfriend, M. (2000) Maintaining Low Inflation: Rationale and Reality. In Blejer, et al. (eds.) Inflation Targeting in Practice: Strategic and Operational Issues and Application to Emerging Economies. International Monetary Fund. Gordon, R. J. (1985) The Conduct of Domestic Monetary Policy. In Endo, et al. (eds.) Monetary Policy in Our Times. London: The MIT Press. Hasan, A. M., A. H. Khan, H. A. Pasha, and A. Rasheed (1995) What Explains the Current High Rate of Inflation in Pakistan. The Pakistan Development Review 34:4, 927–947. Hodrick, R. J., and E. C. Prescort (1997) Post-war US Business Cycles: An Empirical Investigation. Journal of Money, Credit and Banking 29, 1–16. Hossain, A. (1986) Monetary Disequilibrium and Inflation: a monetary Model of Inflation in Pakistan. The Pakistan Development Review 25:2, 141–162.…

    • 4379 Words
    • 18 Pages
    Powerful Essays
    Read More
  • Good Essays

    What Is Monetary Policy? Explain the General Objectives of Monetary Policy.
    • 1811 Words
    • 8 Pages

    What Is Monetary Policy? Explain the General Objectives of Monetary Policy.

    Monetary policy is a part overall economic policy of a country. It is employed by the government as an effective tool to promote economic stability and achieve certain predetermined objectives.…

    • 1811 Words
    • 8 Pages
    Good Essays
    Read More
  • Good Essays

    Impact of Monetary Policy on Companies Profitability and Its Valuation
    • 3885 Words
    • 16 Pages

    Impact of Monetary Policy on Companies Profitability and Its Valuation

    Monetary policy is the management of money supply and interest rates by central banks to influence prices and employment. Monetarypolicy works through expansion or contraction of investment and consumption expenditure.Monetary policy is the process by which the government, central bank (RBI in India), or monetary authority of a country controls :…

    • 3885 Words
    • 16 Pages
    Good Essays
    Read More
  • Powerful Essays

    How Inflation Expectations Influence Monetary Policy Effectiveness And Should Inflation Targeting
    • 2789 Words
    • 9 Pages

    How Inflation Expectations Influence Monetary Policy Effectiveness And Should Inflation Targeting

    Batini, N. and Laxton, D. (2007). Under what conditions can inflation targeting be adopted? The experience of emerging markets. Central Banking, Analysis, and Economic Policies Book Series, 11, pp.467--506.…

    • 2789 Words
    • 9 Pages
    Powerful Essays
    Read More
  • Good Essays

    Rbi Monetary Policy in India
    • 915 Words
    • 4 Pages

    Rbi Monetary Policy in India

    RBI Monetary Policy – S2 Group 1 1. Fiscal Policy  Use of “Government Expenditure”, and “taxation” to manage the economy.  Purpose of Fiscal Policy o Stabilise economic growth o avoiding the boom and bust economic cycle  Variables affected by Fiscal Policy in the economy o Aggregate demand and the level of economic activity o The pattern of resource allocation o The distribution of income. 2. Physical Policy  Meant to affect only strategic points of the economy.  Purpose of Physical Policy o Overcome specific problems such as pricing of particular commodity, shortages or surpluses developing in the economy etc.  Variables affected by Physical Policy in the economy o Price and distribution of specific commodity o Investment and production o Foreign Trade 3. Monetary Policy  Regulation of supply of Money and Cost and Availability of Credit in the economy.  Purpose of Monetary Policy o Maintain price stability o Ensure adequate flow of credit to the productive sectors of the economy o Overall economic growth  Variables affected by Monetary Policy in the economy o Interest Rates o Liquidity o Credit Availability o Exchange Rates 4. Monetary Policy – RBI’s role  Demand for Money Demand for goods/services  Ensuring price Stability by controlling CRR, OMO & Bank Rate savings  Control on money Control on bank supply, velocity of credit when prices circulation of money rise/fall during inflation 5. Current Global Scenario  Global GDP -0.6%  World trade contraction by Tighter credit  Recession  Production 0.5% Plunge  Demand Slump  Job losses  Aggressive and unconventional measures taken by Governments and central banks…

    • 915 Words
    • 4 Pages
    Good Essays
    Read More
  • Good Essays

    A Revolution in Monetary Policy
    • 731 Words
    • 3 Pages

    A Revolution in Monetary Policy

    This speech by Prof. Joseph E. Stiglitz was delivered at RBI’s fifteenth “C.D. Deshmukh Memorial lecture”. Mr. Deshmukh was RBI’s first governor who set the foundation for a culture that has made RBI as exemplary among the central banks of the world as it is today. Prof Stiglitz elaborates that the fact that RBI plays a role that goes much beyond a mere handling of finances came to light during the global economic crisis of 2008, which was largely caused by a failure of central banks in USA and Europe. This was mostly because of the mentality of its first governor, Mr. Deshmukh, who understood the importance of the state’s role in providing credit for the development of the nation.…

    • 731 Words
    • 3 Pages
    Good Essays
    Read More
  • Powerful Essays

    inflation in india
    • 1949 Words
    • 8 Pages

    inflation in india

    Primarily, two types of price indices used are – Wholesale Price Index (WPI) and Consumer Price Index (CPI). Inflation measured through wholesale price index is called wholesale price inflation or headline inflation and inflation measured through consumer price index is called consumer price inflation.…

    • 1949 Words
    • 8 Pages
    Powerful Essays
    Read More
  • Powerful Essays

    History of the Indian Rupee
    • 2839 Words
    • 12 Pages

    History of the Indian Rupee

    Sharma, Krishna K. Role of Monetary Policy in Planned Economy: With Special Reference to India. Meerut: Meenakshi Prakashan, 1965.…

    • 2839 Words
    • 12 Pages
    Powerful Essays
    Read More

Related Topics