Monetary policy and Monetary policy space: Difference between pages

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Monetary policy is central government or other policy to stimulate or otherwise influence economic activity by influencing money supply or interest rates.  
''Central banks - monetary policy - interest rates - unconventional monetary policy''.


Historically, mechanisms for influencing the money supply have included the use of open market operations, quantitative easing, the central bank discount rate and reserve requirements.
Monetary policy space is the degree of flexibility that central banks have in applying monetary policy, especially in the context of very low interest rates.




====UK monetary policy====
:<span style="color:#4B0082">'''''The economic impacts of Covid-19 to date: risk management'''''</span>


In recent years the primary objectives of UK monetary policy have been 'stable prices' and confidence in the currency, collectively known as 'monetary stability'.
:" In arguing that risk management considerations become increasingly important when monetary policy space is limited, Evans et al. defined monetary policy space in terms of scope to cut interest rates to the effective lower bound (ELB) ...  


'Stable prices' are defined by the UK government's inflation target, currently 2% per annum as measured by the UK Consumer Prices Index (CPI).
:I am referring to monetary policy space in terms of the MPC’s current toolkit, namely the scope for rate cuts to the effective lower bound, purchases of government and high grade corporate debt, and forward guidance.  


The objective is to keep inflation close to the target, neither too high nor too low. If inflation moves away from the target by more than 1% in either direction, additional corrective actions will be taken.
:Policy space is limited because, unless term premia become substantially negative, asset purchases probably could not push longer term rates much below the effective lower bound for the policy rate.  


:The MPC could still expand [quantitative easing] or reintroduce forward guidance even if the entire yield curve is at or below the ELB.


Subject to the primacy of the inflation target, the secondary objectives of monetary policy in the UK are to support the government's other economic objectives, including those for growth and employment.
:But the effectiveness of such measures may be less – and surely is less certain – under those conditions."


:''Michael Saunders, External Member of the Bank of England's Monetary Policy Committee (MPC), May 2020.''


Responsibility for setting UK monetary policy - to achieve monetary stability - lies with the Bank of England's Monetary Policy Committee (MPC).


 
==See also==
Monetary policy in the UK has usually operated through setting the Bank of England's interest rate, the Official Bank Rate, or 'Bank Rate'.
* [[Asset purchase programme]]
 
The Official Bank Rate is sometimes referred to as the 'Bank of England Base Rate'.
 
 
====Quantitative easing in the UK ====
 
In 2009, in addition to setting Official Bank Rate, the MPC started quantitative easing (QE).
 
This means injecting money directly into the economy by purchasing financial assets.
 
QE is designed to stimulate the economy further, beyond what could be achieved by low interest rates alone.
 
 
== See also ==
* [[Bank of England]]
* [[Bank of England]]
* [[Bank Rate]]
* [[Central bank]]
* [[Consumer Prices Index]]
* [[COVID-19]]
* [[Debasement]]
* [[Deflation]]
* [[Depression]]
* [[Discount rate]]
* [[Dovish]]
* [[Effective lower bound]]
* [[Effective lower bound]]
* [[Financial Policy Committee]]
* [[Forward guidance]]
* [[Financial stability]]
* [[High grade]]
* [[Fiscal policy]]
* [[Monetary policy]]
* [[Hawkish]]
* [[Inflation]]
* [[Inflation target]]
* [[Interest rate]]
* [[Keynesianism]]
* [[Lowflation]]
* [[Monetary]]
* [[Monetary Policy Committee]]
* [[Monetary Policy Committee]]
* [[Money supply]]
* [[Policy interest rate]]
* [[Official Bank Rate]]
* [[Quantitative easing]]
* [[Open market operations]]
* [[Risk management]]
* [[Quantitative easing ]]
* [[Term premium]]
* [[Recession]]
* [[Reserve requirements]]
* [[Sterling Monetary Framework]]
* [[Supply side policy]]
* [[Unconventional monetary policy]]
* [[Unconventional monetary policy]]
* [[Zero lower bound]]
* [[Yield curve]]
* [[ZLB problem]]


[[Category:Accounting,_tax_and_regulation]]
[[Category:The_business_context]]
[[Category:The_business_context]]
[[Category:Identify_and_assess_risks]]
[[Category:Manage_risks]]
[[Category:Cash_management]]
[[Category:Financial_products_and_markets]]
[[Category:Liquidity_management]]

Latest revision as of 13:05, 10 June 2020

Central banks - monetary policy - interest rates - unconventional monetary policy.

Monetary policy space is the degree of flexibility that central banks have in applying monetary policy, especially in the context of very low interest rates.


The economic impacts of Covid-19 to date: risk management
" In arguing that risk management considerations become increasingly important when monetary policy space is limited, Evans et al. defined monetary policy space in terms of scope to cut interest rates to the effective lower bound (ELB) ...
I am referring to monetary policy space in terms of the MPC’s current toolkit, namely the scope for rate cuts to the effective lower bound, purchases of government and high grade corporate debt, and forward guidance.
Policy space is limited because, unless term premia become substantially negative, asset purchases probably could not push longer term rates much below the effective lower bound for the policy rate.
The MPC could still expand [quantitative easing] or reintroduce forward guidance even if the entire yield curve is at or below the ELB.
But the effectiveness of such measures may be less – and surely is less certain – under those conditions."
Michael Saunders, External Member of the Bank of England's Monetary Policy Committee (MPC), May 2020.


See also

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