Get Even More Visitors To Your Blog, Upgrade To A Business Listing >>

THE MONETARY POLICY TRANSMISSION MECHANISM-PART 1

The practice of Monetary development has a long checkered antecedence,and invariably begins by the tradition that Monetary Policy bequeathe to it.The most important port being the dissertation of the the circulation of money supply which can be achieved by the monetary policy transmission mechanism.In this edition,the blogger IBIKUNLE LANIYAN,examines the strategic impact of the mechanism on the larger economy as a whole to boost growth and development.
Monetary policy transmission  meImage result for the photos of printing presseses and mints of currencychanism has been defined as the channels though not mutually exclusive through which monetary aggregates evolutionary effects invariably alter,macroeconomic variables and dtermine predictable intervals of the level of product and services.There are four phenomenal instances according to economic literature which were identified as the main mechanism through monetary policy influences price level and national income.They according to Mishkin1993 also inlude financial assets price,intetest rate,domestic credit and foreigh exchange respectively.
While the expansionary monetary policy tends to exert upward pressure on financial assets prices,increasing firms market value,in terms of financial assets and prices value according to Tobin in relation to the cost of capital,and positively influencing household wealth;the domestic credit strictly refers to transmission channel of  the commercial banks credit assets,in terms of corporate finances and securities portfolio and by agregate spur growth and positive effects on household consumption and business investment.Changes in monetary policy tends to encourage commercial banks to reallocate the credit capitalas they find it profitable.The monetary expansion can increase their reserves,making them more liquid and one of the most effective channel to invest the surplus is the domestic credit,to make positive growth and economic development.
Whreas the monetary policy exert a different toga of change entirely on foreign exhange,been a channel where increasing the amount of currency tends to result in a reduction of nominal interest rate.And when this happens,this leads to a negative or adverse differential between foreign interest rates and domestic rate.and in the occassion of perfect capital mobility and perfect substitutability of financial assets and given the simultaneous growth in the demand for foreign currency,in the invasion of a decline of local worthless currency supply in the foex markets,a depreciation of nominal exchange rate is posible.


This post first appeared on Kunle Microfinance, please read the originial post: here

Share the post

THE MONETARY POLICY TRANSMISSION MECHANISM-PART 1

×

Subscribe to Kunle Microfinance

Get updates delivered right to your inbox!

Thank you for your subscription

×