Monetary policy

monetarymonetary policiesexpansionary monetary policyunconventional monetary policycontractionary monetary policymonetary expansiontheory of moneyexpansionary policiesinterest ratesmonetary contraction
Monetary policy is the policy adopted by the monetary authority of a country that controls either the interest rate payable on very short-term borrowing or the money supply, often targeting inflation or the interest rate to ensure price stability and general trust in the currency.wikipedia
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Unemployment

unemployedunemployment ratejob creation
Further goals of a monetary policy are usually to contribute to the stability of gross domestic product, to achieve and maintain low unemployment, and to maintain predictable exchange rates with other currencies. It is traditionally used to try to combat unemployment in a recession by lowering interest rates in the hope that less expensive credit will entice businesses into expanding.
Furthermore, the monetary authority of a country like the central bank could influence the availability and cost for money through its monetary policy.

Price stability

stabilising prices
Monetary policy is the policy adopted by the monetary authority of a country that controls either the interest rate payable on very short-term borrowing or the money supply, often targeting inflation or the interest rate to ensure price stability and general trust in the currency.
Price stability is a goal of monetary and fiscal policy aiming to support sustainable rates of economic activity.

Recession

economic recessioneconomic downturndepression
It is traditionally used to try to combat unemployment in a recession by lowering interest rates in the hope that less expensive credit will entice businesses into expanding.
Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply or increasing government spending and decreasing taxation

Money supply

supply of moneyM2M1
Monetary policy is the policy adopted by the monetary authority of a country that controls either the interest rate payable on very short-term borrowing or the money supply, often targeting inflation or the interest rate to ensure price stability and general trust in the currency. The multiplier effect of fractional reserve banking amplifies the effects of these actions on the money supply, which includes bank deposits as well as base money.
This is one reason for the reliance on monetary policy as a means of controlling inflation.

Fiscal policy

fiscalfiscal policiesfiscal management
In developed countries, monetary policy has been generally formed separately from fiscal policy, which refers to taxation, government spending, and associated borrowing.
Fiscal and monetary policy are the key strategies used by a country's government and central bank to advance its economic objectives.

Interest rate

interest ratesdiscount rateinterest
Monetary policy is the policy adopted by the monetary authority of a country that controls either the interest rate payable on very short-term borrowing or the money supply, often targeting inflation or the interest rate to ensure price stability and general trust in the currency. The central bank influences interest rates by expanding or contracting the monetary base, which consists of currency in circulation and banks' reserves on deposit at the central bank.
Interest rate targets are a vital tool of monetary policy and are taken into account when dealing with variables like investment, inflation, and unemployment.

Bank of England

The Bank of EnglandBankAsset Purchase Facility
With the creation of the Bank of England in 1694, which acquired the responsibility to print notes and back them with gold, the idea of monetary policy as independent of executive action began to be established.
The Bank's Monetary Policy Committee has a devolved responsibility for managing monetary policy.

Milton Friedman

FriedmanFriedman, MiltonMilton
These included Milton Friedman who early in his career advocated that government budget deficits during recessions be financed in equal amount by money creation to help to stimulate aggregate demand for output.
His ideas concerning monetary policy, taxation, privatization and deregulation influenced government policies, especially during the 1980s.

Exchange rate

exchange ratesreal exchange rateforeign exchange rate
Further goals of a monetary policy are usually to contribute to the stability of gross domestic product, to achieve and maintain low unemployment, and to maintain predictable exchange rates with other currencies.

Discount window

discount ratediscount ratesliquidity support facility
Central banks have three main tools of monetary policy: open market operations, the discount rate and the reserve requirements.
The discount window is an instrument of monetary policy (usually controlled by central banks) that allows eligible institutions to borrow money from the central bank, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions.

Tax

taxationtaxeslevy
In developed countries, monetary policy has been generally formed separately from fiscal policy, which refers to taxation, government spending, and associated borrowing.

Central bank

central bankscentral bankingcentral banking system
The central bank influences interest rates by expanding or contracting the monetary base, which consists of currency in circulation and banks' reserves on deposit at the central bank.
Central banks implement a country's chosen monetary policy.

Quantitative easing

credit easingQEQE3
These include credit easing, quantitative easing, forward guidance, and signaling.
Quantitative easing (QE), also known as large-scale asset purchases, is a monetary policy whereby a central bank buys predetermined amounts of government bonds or other financial assets in order to inject liquidity directly into the economy.

Open market operation

open market operationsopen-market operationsbuying operations
Central banks have three main tools of monetary policy: open market operations, the discount rate and the reserve requirements.
A central bank uses OMO as the primary means of implementing monetary policy.

Monetary economics

monetary theorymonetary economymonetary
Monetary economics provides insight into how to craft an optimal monetary policy.
*Transmission mechanisms of monetary policy as to the macroeconomy

Paul Volcker

Paul A. VolckerPaul A. Volcker, Jr.Volcker shock
However, when U.S. Federal Reserve Chairman Paul Volcker tried this policy, starting in October 1979, it was found to be impractical, because of the highly unstable relationship between monetary aggregates and other macroeconomic variables.
The monetary policies of the Federal Reserve board, led by Volcker, were widely credited with curbing the rate of inflation and expectations that inflation would continue.

Reserve requirement

reserve requirementsreserve ratiocash reserve ratio
Central banks have three main tools of monetary policy: open market operations, the discount rate and the reserve requirements.
The required reserve ratio is sometimes used as a tool in monetary policy, influencing the country's borrowing and interest rates by changing the amount of funds available for banks to make loans with.

Helicopter money

helicopter dropdropping money out of a helicopterhelicopter drops
Further heterodox monetary policy proposals include the idea of helicopter money whereby central banks would create money without assets as counterpart in their balance sheet.
Helicopter money is a proposed unconventional monetary policy, sometimes suggested as an alternative to quantitative easing (QE) when the economy is in a liquidity trap (when interest rates near zero and the economy remains in recession).

Federal Reserve

Federal Reserve SystemUS Federal ReserveU.S. Federal Reserve
However, when U.S. Federal Reserve Chairman Paul Volcker tried this policy, starting in October 1979, it was found to be impractical, because of the highly unstable relationship between monetary aggregates and other macroeconomic variables. During the period 1870–1920, the industrialized nations set up central banking systems, with one of the last being the Federal Reserve in 1913. For example, in the case of the United States the Federal Reserve targets the federal funds rate, the rate at which member banks lend to one another overnight; however, the monetary policy of China is to target the exchange rate between the Chinese renminbi and a basket of foreign currencies.
The U.S. Congress established three key objectives for monetary policy in the Federal Reserve Act: maximizing employment, stabilizing prices, and moderating long-term interest rates.

Currency

currenciesforeign currencycoinage
Further goals of a monetary policy are usually to contribute to the stability of gross domestic product, to achieve and maintain low unemployment, and to maintain predictable exchange rates with other currencies.
In most cases, a central bank has a monopoly right to issue of coins and banknotes (fiat money) for its own area of circulation (a country or group of countries); it regulates the production of currency by banks (credit) through monetary policy.

Monetary policy of China

For example, in the case of the United States the Federal Reserve targets the federal funds rate, the rate at which member banks lend to one another overnight; however, the monetary policy of China is to target the exchange rate between the Chinese renminbi and a basket of foreign currencies.
Monetary policy concerns the actions of a central bank or other regulatory authorities adopt to manage and regulate currency and credit in order to achieve certain macroeconomic goals.

Federal funds

Fed fundsfederal funds marketU.S. Federal Reserve overnight interest rate
Monetary policy is the policy adopted by the monetary authority of a country that controls either the interest rate payable on very short-term borrowing or the money supply, often targeting inflation or the interest rate to ensure price stability and general trust in the currency.
The Fed, which is the central bank of the United States, conducts monetary policy primarily by targeting a certain value for the federal funds rate.

Exchange rate regime

exchange-rate regimeexchange rate policyexchange rate
The different types of policy are also called monetary regimes, in parallel to exchange-rate regimes.
It is closely related to monetary policy and the two are generally dependent on many of the same factors, such as economic scale and openness, inflation rate, elasticity of the labor market, financial market development, capital mobility etc.

Fractional-reserve banking

fractional reserve bankingCriticism of fractional-reserve bankingfractional reserve system
The multiplier effect of fractional reserve banking amplifies the effects of these actions on the money supply, which includes bank deposits as well as base money.
In most countries, the central bank (or other monetary policy authority) regulates bank credit creation, imposing reserve requirements and capital adequacy ratios.

Overnight rate

overnight interest rateovernightovernight capital cost
The interest rate used is generally the overnight rate at which banks lend to each other overnight for cash flow purposes.
In some countries (the United States of America, for example), the overnight rate may be the rate targeted by the central bank to influence monetary policy.