Monetary Policy (what it is, objective, history, characteristics)

When we mention the monetary politics We refer to the decisions and interferences that a central bank assumes to regulate, influence and balance the availability of money in a nation's economy.

Therefore it is the area of ​​the economic policy that controls certain monetary factors in order to stabilize prices and control the economic growth.

Through this discipline, central banks can run the economy and thus achieve specific objectives of the macroeconomy.

History of monetary policy

It is a system that was developed by some economists such as

Knut Wicksell, Milton Friedman, Clark Warburton and Irving Fisher, in order to emphasize macroeconomic stability. They are considered as the representatives of the monetarism, with the ideals of the classical economists.

As a factor contrary to monetarism, we can mention the Keynesianism by John Maynard Keynes, who focused on the importance of fiscal policy macroeconomic stability.

Regarding the empirical adequacy of the policies recommended by the two modalities, it is currently still a debate. The classics supposed that before the fall of money, they could lower prices and wages and in turn employment would return. However, the result for prices and wages going down was extremely rigid, since the employers decided to refuse to lower their prices and the employees received very little.

The popularity of the intervention of economists today is less, this is because most governments To overcome the crisis, they applied various economic measures that stimulated the Keynesian line more than the line monetarist.

Characteristics of monetary policy

• This system is based on the relationship that exists between the interest rates of an economy, which refer to the calculation of the money requested as a loan in the banking entities and the amount of money that is in circulation.
• In this monetary discipline, different strategies and tools can be used to achieve control of the itself and how it influences the results of financial growth, currency exchange with other countries and the unemployment

What is the end of monetary policy

It is difficult to achieve the objectives of this discipline, when using monetary policy alone. The correct way to achieve this is by activating the fiscal policies in coordination with monetary policyIn fact, these policies are usually limited and for this reason, most economists do not consider their use favorable, since they can pronounce economic cycles.

Through the use of this action, many countries gain the power to control the financial supply and thereby achieve their macroeconomic objectives, while maintaining the unemployment, inflation and economic growth stabilized.

We can enumerate some of the objectives that are achieved by a good apolitical moneytariza.

Address unemployment immediately.

This is obtained when there is a minimum number of unemployed people, which is why the immediate implementation of expansionary policies that lead to investment and investment. hiring.

Improve the balance of payments balance

The country's imports are less monitored than exports, due to the fact that there could be an uncontrolled increase in debt and financial devaluation.

Control inflation

Try to keep the price level in low and stable percentages. In the event that inflation becomes very high, it is necessary to restrict policies, but if inflation is low, expansionary monetary policies should be used.

Seek economic growth

Ensure the growth of the country's economy so that more jobs are generated and wellness and in order for it to be carried out, expansionary monetary policy must be used.

Types of monetary policies

Regardless of the objective of this system, it can be classified into two types:

Expansive monetary policy

It is the one that increases the economic level of a country to promote investment, allowing it to decrease unemployment and stimulate financial growth, therefore, its use can cause inflation.

Restrictive monetary policy

It consists of the search to reduce the money of a country with the purpose of reducing inflation. When this is applied, a reduction in investment can occur and, in turn, an increase in unemployment.

Monetary policy mechanisms

Various mechanisms related to this system can be found to be able to carry out both expansive and expansive policies. restrictive, such as the variation of the cash ratio, open operations in the market or transform the facilities permanent.

Depending on the intensity of the mechanism used, two types of mechanisms can be highlighted, these are:

Conventional monetary policy

It is the one that uses traditional mechanisms, that is, it refers to the different official interest rates and the prevention of liquidity.

Unconventional monetary policy

If conventional policy fails and does not work, unconventional strategies must be used in order to incorporate liquidity into the economy through stronger mechanisms.

Monetary policy lags and lags

The effects of this system can be distorted, because its actions sometimes have certain delays and that is why that can be pointed out in a negative way that it may be subject to certain lags, such as those that will be mentioned below. continuation:

Recognition lag

It is about the time that passes between the need for the measures and the recognition of this need. These measures come from the pleasure that is generated from prosperity, indifference to unpleasant events and negative diagnoses caused by the contraction of economic indices.

Administrative gaps

It refers to the time that occurs between the recognition of the need for measures and their adoption. This means that monetary policy suffers from a smaller administrative lag than fiscal policy.

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