1)Identify one possible expansionary monetary policy. 2)Carefully explain in as much detail as possible, how the chosen action will impact the money market? 3)illustrated the overall impact of the chosen action on the money market In 2019, while there was a mixed approach to monetary policy-setting in the Caribbean, overall the monetary policy stance in the region remained accommodative. Jamaica, for instance, continued to pursue an expansionary monetary policy with the Bank of Jamaica cutting its overnight rates four times in 2019. The overnight rates were reduced from 1.75% in December 2018 to a historic low of 0.50% in August 2019. In contrast, the Central Bank van Suriname increased the reserve requirement for foreign currency deposits and required that at least half of commercial banks’ USD cash deposits and all of the EUR deposits be held at the Bank, in order to maintain a stable exchange rate. Further, despite the subdued economic activity, the Central Bank of Trinidad and Tobago maintained its monetary policy rate, the repo rate, at 5.00% during the first eleven months of 2019 in consideration of foreign exchange shortages. In the Bahamas, monetary policy was neutral with the Central Bank holds its policy discount rate at 4.00%.
Monetary Policy and Equation of Exchange
The monetary policy has been defined as the policy that is used by the Federal Reserve (the central bank of the US) or the central bank (the central bank of India is RBI) along with the use of the supply of money to accomplish certain macroeconomic policies. Monetary policy is a supply-side macroeconomic policy that supervises the growth rate and money supply in the economy.
Monetary Economics
As from the name, it is very evident that monetary economics deals with the monetary theory of economics. Therefore, we can say that monetary economics, is that part of economics that provides us with the idea or notion of analyzing money as a holding with its function, which acts as the medium of exchange, the store of value through which the buying and selling are done and also the unit of account. It also helps in formulating the framework of the monetary policy of a bank in an economy which ultimately results in the welfare of the people residing in that particular economy. The monetary policy of an economy also helps to analyze and evaluate the financial health of it.
1)Identify one possible expansionary
2)Carefully explain in as much detail as possible, how the chosen action will impact the
3)illustrated the overall impact of the chosen action on the money market
In 2019, while there was a mixed approach to monetary policy-setting in the Caribbean, overall the monetary policy stance in the region remained accommodative. Jamaica, for instance, continued to pursue an expansionary monetary policy with the Bank of Jamaica cutting its overnight rates four times in 2019. The overnight rates were reduced from 1.75% in December 2018 to a historic low of 0.50% in August 2019. In contrast, the Central Bank van Suriname increased the reserve requirement for foreign currency deposits and required that at least half of commercial banks’ USD cash deposits and all of the EUR deposits be held at the Bank, in order to maintain a stable exchange rate.
Further, despite the subdued economic activity, the Central Bank of Trinidad and Tobago maintained its monetary policy rate, the repo rate, at 5.00% during the first eleven months of 2019 in consideration of foreign exchange shortages. In the Bahamas, monetary policy was neutral with the
Central Bank holds its policy discount rate at 4.00%.
Step by step
Solved in 5 steps
