Framework of Monetary policy general instrument central bank refinance rates statutory reserve requirements open market operation special instrument Instruments preferential interest rate moral suasion
Framework of Monetary policy Framework of Monetary policy • general instrument – central bank refinance rates – statutory reserve requirements – open market operation • special instrument Inst ments – preferential interest rate Instruments – moral suasion – …
Framework of Monetary policy Objectives Intermediate targets Operating targets Instruments Monetary Transmission Mechanism
Framework of Monetary policy Obj ti Framework of Monetary policy Operating targets Intermediate targets Objectives Operating targets Instruments Monetar y Transmission Mechanism
Monetary Transmission Mechanism 1)Interest rate channel Instruments Money Supply (Investment) crease decrease increase IS-LM model Y(aggregate output) Increase
Monetary Transmission Mechanism Monetary Transmission Mechanism 1) Interest rate channel 1) Interest rate channel Instruments Money Supply i I (Investment) increase decrease increase increase Y (aggregate output) IS-LM model
Monetary Transmission Mechanism 2)Foreign exchange rate channel Instruments (exchange rate) decrease decrease increase Y(aggregate output) Increase
Monetary Transmission Mechanism Monetary Transmission Mechanism 2) Foreign exchange rate channel 2) Foreign exchange rate channel Instruments i E (exchange rate) NX decrease decrease increase increase Y (aggregate output)