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Interest Rate Channel
The interest rate channel is a mechanism of monetary policy, whereby a policy-induced change in the short-term nominal interest rate by the central bank affects the price level, and subsequently output and employment. How the interest rate channel works While the central bank aims to control short term nominal interest rates (such as the federal funds rate in the United States), the overall economy is primarily affected by the long-term real interest rates charged by commercial banks to their customers. The interest rate channel focuses on how changes in the central bank’s policy rate affect various commercial interest rates including forex. The interest rate channel posits that an increase in the short-term nominal interest rate leads first to an increase in longer-term nominal interest rates. This is described by the expectation hypothesis of the term structure. In turn, this affects the real interest rate and the cost of capital, because prices are assumed to be sticky in t ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Monetary Policy
Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money supply, often as an attempt to reduce inflation or the interest rate, to ensure price stability and general trust of the value and stability of the nation's currency. Monetary policy is a modification of the supply of money, i.e. "printing" more money, or decreasing the money supply by changing interest rates or removing excess reserves. This is in contrast to fiscal policy, which relies on taxation, government spending, and government borrowing as methods for a government to manage business cycle phenomena such as recessions. Further purposes of a monetary policy are usually to contribute to the stability of gross domestic product, to achieve and maintain low unemployment, and to maintain predictable exchange rates with other currencies. Monetary ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Durable Goods
In economics, a durable good or a hard good or consumer durable is a good that does not quickly wear out or, more specifically, one that yields utility over time rather than being completely consumed in one use. Items like bricks could be considered perfectly durable goods because they should theoretically never wear out. Highly durable goods such as refrigerators or cars usually continue to be useful for several years of use, so durable goods are typically characterized by long periods between successive purchases. Durable goods are known to form an imperative part of economic production. This can be exemplified from the fact that personal expenditures on durables exceeded the total value of $800 billion in 2000. In the year 2000 itself, durable goods production composed of approximately 60 percent of aggregate production within the manufacturing sector in the United States. Examples of consumer durable goods include bicycles, books, household goods (home appliances, consumer e ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Quantity Theory
In monetary economics, the quantity theory of money (often abbreviated QTM) is one of the directions of Western economic thought that emerged in the 16th-17th centuries. The QTM states that the general price level of goods and services is directly proportional to the amount of money in circulation, or money supply. For example, if the amount of money in an economy doubles, QTM predicts that price levels will also double. The theory was originally formulated by Renaissance mathematician Nicolaus Copernicus in 1517, and was influentially restated by philosophers John Locke, David Hume, Jean Bodin. The theory experienced a large surge in popularity with economists Anna Schwartz and Milton Friedman's book ''A Monetary History of the United States,'' published in 1963. The theory was challenged by Keynesian economists,Minsky, Hyman P. ''John Maynard Keynes'', McGraw-Hill. 2008. p.2. but updated and reinvigorated by the monetarist school of economics, led by economist Milton Friedman. ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Price Stability
Price stability is a goal of monetary and fiscal policy aiming to support sustainable rates of economic activity. Policy is set to maintain a very low rate of inflation or deflation. For example, the European Central Bank (ECB) describes price stability as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the Euro area of below 2%. However, by referring to "an increase in the HICP of below 2%" the ECB makes clear that not only persistent inflation above 2% but also deflation (i.e. a persistent decrease of the general price level) are inconsistent with the goal of price stability. In the United States, the Federal Reserve Act (as amended in 1977) directs the Federal Reserve to pursue policies promoting "maximum employment, stable prices, and moderate long-term interest rates". The Fed long ago determined that the best way to meet those mandates is to target a rate of inflation of around 2%; in 2011 it officially adopted a 2% annual increase in the p ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Taylor Rule
The Taylor rule is a monetary policy targeting rule. The rule was proposed in 1992 by American economist John B. Taylor for central banks to use to stabilize economic activity by appropriately setting short-term interest rates. The rule consider the federal funds rate, the price level and changes in real income.John B. Taylor, Discretion versus policy rules in practice (1993), Stanford University, y, Stanford, CA 94905 The Taylor rule computes the optimal federal funds rate based on the gap between the desired (targeted) inflation rate and the actual inflation rate; and the output gap between the actual and natural output level. According to Taylor, monetary policy is stabilizing when the nominal interest rate is higher/lower than the increase/decrease in inflation. Thus the Taylor rule prescribes a relatively high interest rate when actual inflation is higher than the inflation target. In the United States, the Federal Open Market Committee controls monetary policy. The committee ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Inflation Rate
In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money. The opposite of inflation is deflation, a sustained decrease in the general price level of goods and services. The common measure of inflation is the inflation rate, the annualized percentage change in a general price index. As prices do not all increase at the same rate, the consumer price index (CPI) is often used for this purpose. The employment cost index is also used for wages in the United States. Most economists agree that high levels of inflation as well as hyperinflation—which have severely disruptive effects on the real economy—are caused by persistent excessive growth in the money supply. Views on low to moderate rates of inflation are more varied. Low or moderate inflation may be attri ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Monetary Expansion
Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for federal funds, very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money supply, often as an attempt to reduce inflation or the interest rate, to ensure price stability and general trust of the value and stability of the nation's currency. Monetary policy is a modification of the supply of money, i.e. Money creation, "printing" more money, or decreasing the money supply by changing interest rates or removing excess reserves. This is in contrast to fiscal policy, which relies on taxation, government spending, and government borrowing as methods for a government to manage business cycle phenomena such as recessions. Further purposes of a monetary policy are usually to contribute to the stability of gross domestic product, to achieve and maintain low unemployment, and to maintain predictable exchange rates with o ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Monetary Transmission Mechanism
The monetary transmission mechanism is the process by which asset prices and general economic conditions are affected as a result of monetary policy decisions. Such decisions are intended to influence the aggregate demand, interest rates, and amounts of money and credit in order to affect overall economic performance. The traditional monetary transmission mechanism occurs through interest rate channels, which affect interest rates, costs of borrowing, levels of physical investment, and aggregate demand. Additionally, aggregate demand can be affected through friction in the credit markets, known as the credit view. In short, the monetary transmission mechanism can be defined as the link between monetary policy and aggregate demand. Traditional interest rate channels An interest rate channel may be categorized as traditional, which means monetary policy affects real (rather than nominal) interest rates, which influence investment, spending on new housing, consumer spending, and aggre ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Aggregate Demand
In macroeconomics, aggregate demand (AD) or domestic final demand (DFD) is the total demand for final goods and services in an economy at a given time. It is often called effective demand, though at other times this term is distinguished. This is the demand for the gross domestic product of a country. It specifies the amount of goods and services that will be purchased at all possible price levels. Consumer spending, investment, corporate and government expenditure, and net exports make up the aggregate demand. The aggregate demand curve is plotted with real output on the horizontal axis and the price level on the vertical axis. While it is theorized to be downward sloping, the Sonnenschein–Mantel–Debreu results show that the slope of the curve cannot be mathematically derived from assumptions about individual rational behavior. Instead, the downward sloping aggregate demand curve is derived with the help of three macroeconomic assumptions about the functioning of markets: ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Deposits
A deposit account is a bank account maintained by a financial institution in which a customer can deposit and withdraw money. Deposit accounts can be savings accounts, Transaction account#Current accounts, current accounts or any of several other types of accounts explained below. Transactions on deposit accounts are recorded in a bank's books, and the resulting balance is recorded as a Liability (accounting), liability of the bank and represents an amount owed by the bank to the customer. In other words, the banker-customer (depositor) relationship is one of debtor-creditor. Some banks charge fees for transactions on a customer's account. Additionally, some banks pay customers Interest (finance), interest on their account balances. Types of accounts * How banking works In banking, the verbs "deposit" and "withdraw" mean a customer paying money into, and taking money out of, an account, respectively. From a legal and financial accounting standpoint, the noun "deposit" is used ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
