An analysis of the effectiveness of monetary policy in stabilizing the economy
Keywords:
Central bank, Open market operations, Quantitative easing, Monetary transmission mechanismAbstract
The activities done by a central bank to govern the amount of money and credit available in an economy are collectively referred to as "monetary policy." The basic purpose of monetary policy is to encourage economic development while simultaneously attempting to keep prices stable. Adjustments to interest rates, open market operations, and reserve requirements are some of the methods that central banks utilise in order to accomplish this goal using a variety of instruments. This article examines the conceptual underpinnings of monetary policy, covering both the classical and Keynesian points of view about the function that monetary policy plays in the economy. In addition to this, it investigates the past performance of monetary policy in a variety of nations, doing an analysis of the effect that varying interest rates, quantitative easing, and other policy instruments have had on economic expansion, inflation, and unemployment. According to the findings of the research, monetary policy can be an effective tool in stabilising the economy; however, the extent to which it is successful in doing so is contingent upon a number of factors, including the current condition of the economy, the make-up of financial markets, and the efficiency of transmission mechanisms. recognises a number of constraints and problems that are associated with monetary policy as well, such the zero lower bound on interest rates, the danger of asset bubbles, and the possibility for moral hazard. m The study comes to the conclusion that although monetary policy may play a vital role in maintaining economic stability, it is not a silver bullet that can solve all of the world's economic woes. It's possible that other measures, including fiscal policy, structural changes, and international cooperation, will also be required to foster sustainable economic development and stability over the long term.
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