Test point 8: Monetary policy objectives and tools
Objectives of Monetary Policy
operation target
01
short-term money market rate
bank reserve
base currency
Intermediary target
02
Bank credit scale
currency supply
long term interest rate
ultimate goal
03
Economic Growth
Balance of Payments
financial stability
Full employment
stabilize prices
The selection of monetary policy operating targets and intermediary targets must meet the following criteria: measurability, controllability, relevance, anti-interference and adaptability.
monetary policy tools
Test point 9: Monetary policy transmission mechanism
1. An overview of the monetary transmission mechanism
The monetary policy transmission mechanism refers to the process and mechanism in which the central bank uses monetary policy means and monetary policy tools to adjust and influence relevant economic variables in the economy, and to achieve established economic goals through certain channels .
(1) Interest rate transmission mechanism
Money supply ↑ → real interest rate ↓ → investment ↑ → total output ↑
In this transmission mechanism, the core variable is interest rate
(2) Credit transmission mechanism
Money supply ↑ - bank deposits and loans ↑ - investment ↑ - total assets ↑
transmission channel of bank credit
(3) Asset price transmission mechanism
The q-value is defined as the ratio of the market value of a firm to the replacement cost of capital
When the q value is greater than 1, the market value of the enterprise will be greater than the replacement cost, investment will increase, and ultimately increase the total social demand and output.
Tobin q theory
Money supply ↑ stock price ↑ Tobin q ↑ investment ↑ total output ↑
Money supply ↑ Stock prices ↑ Financial asset values ↑ Financial difficulties ↓ Consumer durables and housing spending Weddings and funerals Total output ↑
(4) Exchange rate transmission mechanism
Money supply ↑ Real interest rate ↓ Exchange rate ↓ Net exports ↑ Gross output ↑