The application of monetary policy can be divided into tight monetary policy and expansionary monetary policy. Generally speaking, the tight monetary policy tightens the economy by reducing the money supply, while the expansionary monetary policy expands the economy by increasing the money supply.
Narrow monetary policy: refers to the sum of policies and measures adopted by the central bank to achieve the established economic goals (stabilizing prices, promoting economic growth, achieving full employment and balancing international payments), and thus affecting the macro-economy.
Broad monetary policy: refers to all monetary laws and regulations and all measures adopted by the government, the central bank and other relevant departments that affect financial variables. (including financial system reform, that is, changes in rules, etc.). )
By adjusting the money supply, the central bank affects the interest rate and credit supply in the economy, thus indirectly affecting the total demand, so as to achieve the ideal balance between total demand and total supply. Monetary policy can be divided into expansionary and contractive.
Expansionary monetary policy is to stimulate aggregate demand by increasing the growth rate of money supply. Under this policy, it is easier to get credit and interest rates will be reduced. Therefore, when the total demand is low relative to the economic production capacity, it is most appropriate to use expansionary monetary policy.
Tight monetary policy is to reduce the level of total demand by reducing the growth rate of money supply. Under this policy, it is more difficult to obtain credit and interest rates will increase. Therefore, when inflation is serious, it is more appropriate to adopt tight monetary policy.
The object of monetary policy adjustment is the money supply, that is, the total purchasing power of the whole society, which is embodied in the cash in circulation and the deposits of individuals, enterprises and institutions in banks. Cash in circulation is closely related to the change of consumer price level, and it is the most active currency, which has always been an important goal for the central bank to pay attention to and adjust.
Monetary policy tool refers to the policy means adopted by the central bank to adjust the intermediate goal of monetary policy.
Monetary policy is a macro policy involving the overall economic situation, which is closely related to fiscal policy, investment policy, distribution policy and foreign investment policy. Comprehensive supporting measures must be implemented to maintain monetary stability.
Main measures to use monetary policy
The main measures taken by using monetary policy include seven aspects:
First, control currency issuance. The effect of this measure is that paper money can be unified to prevent currency confusion; The central bank can grasp the source of funds as the basis for controlling the credit activities of commercial banks; The central bank can use the right to issue money to regulate the money supply.
Second, control and regulate government loans. In order to prevent the government from abusing loans to fuel inflation, capitalist countries generally stipulate that short-term loans are limited and must be paid off when all taxes or debts are collected.
Third, we should promote open market business. Through its open market business, the central bank plays a role in regulating the money supply, expanding or tightening bank credit, and then regulating the economy.
Fourth, change the deposit reserve ratio. The central bank controls the loans of commercial banks by adjusting the reserve ratio and affects their credit activities.
Fifth, adjust the rediscount rate. The rediscount rate is a discount behavior between commercial banks and the central bank. Adjusting the rediscount rate can control and adjust the credit scale and affect the money supply.
Sixth, selective credit control. It is a special management for specific objects, including: securities trading credit management, consumer credit management and real estate credit control.
Seventh, direct credit control. It is a measure taken by the central bank to directly intervene and control the credit activities of commercial banks in order to control and guide their credit activities.
The goal of monetary policy
The ultimate goal of monetary policy refers to the starting point and destination of the central bank's organization and regulation of currency circulation, which reflects the objective requirements of social economy for monetary policy.
Monetary policy usually has four ultimate goals: stable prices, full employment, promoting economic growth and balancing international payments.