Expansionary Monetary Policy


A policy by monetary authorities to expand money supply and boost economic activity, mainly by keeping interest rates low to encourage borrowing by companies, individuals and banks. An expansionary monetary policy can involve quantitative easing, whereby central banks purchase assets from banks. This has the effect of lowering yields on bonds and creating cheaper borrowing for banks. This, in turn, boosts banks' capacity to lend to individuals and businesses. An expansionary monetary policy also risks ramping up inflation.
In July 2013, the president of the Peterson Institute for International Economics, Adam Posen, wrote that despite unjustified claims, quantitative easing and other forms of expansionary monetary policy, as pursued by Japan, did not constitute currency manipulation. Instead the policy had been pursued with purely domestic aims.

Monetary policy

The decisions a monetary authority makes to manage the money supply. The tools at its disposal include modifying benchmark interest rates (such as the Fed funds target and the discount rate in the US), conducting money market operations (which influence short-term interest rates), and changing banks' reserve requirements. Depending on whether the authority wishes to expand money supply, keep it steady or reduce it, monetary policy can be described as accommodative (or loose), neutral or tight.

                                                                                                                                     Source: Financial Express

Thursday, 03rd Sep 2015, 09:31:12 AM

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