scholarly journals An Aggregate Demand - Aggregate Supply Analysis of Japanese Monetary Policy, 1973-1990

10.3386/w3823 ◽  
1991 ◽  
Author(s):  
Kenneth West
Keyword(s):  
Monetary Policy ◽  
Aggregate Demand ◽  
Aggregate Supply ◽  
Supply Analysis

scholarly journals Relationship Between Energy Prices, Monetary Policy and Inflation; A Case Study of South Asian Economies

2014 ◽  
Vol 3 (1) ◽  
pp. 43-58
Author(s):  
Keyword(s):  
Monetary Policy ◽  
Side Effects ◽  
Interest Rate ◽  
Money Supply ◽  
Side Effect ◽  
Aggregate Demand ◽  
Oil Prices ◽  
Energy Prices ◽  
Aggregate Supply ◽  
The Cost

Abstract Monetary policy tools, including money supply and interest rate, are the most popular instruments to control inflation around the globe. It is assumed that a tight monetary policy, either in form of reduction in money supply or an increase in interest rate, will reduce inflation by reducing aggregate demand in an economy. However, monetary policy could be counterproductive if cost side effects of monetary tightening prevail. High energy prices may increase the cost of production by reducing aggregate supply in the economy. If tight monetary policy is used to reduce this cost push inflation, the cost side effect of energy prices will add to cost side effects of monetary tightening and will become dominant. In this case, the monetary policy could be counterproductive. Furthermore, simultaneous reduction in aggregate supply and aggregate demand will bring twofold reduction in output. Therefore greater care is needed in the use of monetary policy in the situation of cost push inflation. This article investigates the presence of cost side effect of monetary transmission mechanism, the role of international oil prices in domestic inflation, and implications for monetary policy. The findings suggest that both monetary policy and oil prices have cost side effects on inflation and monetary tightening could be counterproductive if used to reduce energy pushed inflationary trend.

scholarly journals Examining the differential impact of monetary policy in India: a policy simulation approach

2020 ◽  
Vol 25 (50) ◽  
pp. 339-362
Author(s):  
Sajad Ahmad Bhat ◽  
Bandi Kamaiah ◽  
Debashis Acharya
Keyword(s):  
Monetary Policy ◽  
Price Level ◽  
Negative Impact ◽  
Aggregate Demand ◽  
Differential Impact ◽  
Policy Action ◽  
Policy Simulation ◽  
Content Type ◽  
General Price Level ◽  
Aggregate Supply

Purpose Though an accumulating body of study has analysed monetary policy transmission in India, there are few studies examining the differential impact of monetary policy action. Against this backdrop, this study aims to analyse the differential impact of monetary policy on aggregate demand, aggregate supply and their components along with the general price level in India. Design/methodology/approach The study develops a structural macroeconometric model, which is primarily aggregate and eclectic in nature. The generalized method of movements is used for estimation of behavioural equations, while a Gauss–Seidel algorithm is used for model simulation purposes. Findings The paper presents the results of two policy simulations from the estimated model that highlight the differential impact of monetary policy. The first one, hike in the policy rate by 5% and second is a reduction in bank credit to the commercial sector by 10%. The results from the first policy simulation experiment reveal that interest hike has a significant negative impact on aggregate demand, aggregate supply and general price level. However, the maximum impact is borne by investment demand and imports followed by private consumption. While as among the components of aggregate supply maximum impact is born by infrastructure output followed by the manufacturing and services sector with the agriculture sector found to be insensitive in nature. The results from the second policy simulation experiment revealed that pure monetary shocks have a significant negative impact on aggregate demand, aggregate supply and general price level. However, the maximum impact is born by private consumption and imports followed by investment demand. While as among components of aggregate supply maximum impact is borne by infrastructure followed by the manufacturing and services sector with the agriculture sector found to be insensitive in nature. From both policy simulation experiments, the study highlighted the relative importance of the income absorption approach as opposed to the expenditure switching effect. Practical implications The results obtained in this study provides a strong framework for design the monetary policy framework. The results are in a view of the differential impact of monetary policy action among the components of both aggregate demand and aggregate supply. This reflection of differential impact has immense significance for the macroeconomic stabilization as the central bank will have to weigh the varying repercussion of its actions on different sectors. For instance, the decline in output after monetary tightening might be conceived as mild from an overall perspective, but it can be appreciable for some sectors. This differential influence will have an implication for policy design to care for distributional aspects, which otherwise could be neglected/disregarded. Similarly, the output decline may be as a result of either consumption postponement or a temporary slowdown in investment. However, the one emanating due to investment decline will have lasting growth implications compared to a decline in consumer demand. In addition, the relative strength of expenditure changing or expenditure switching policies of trade balance stabilization may have varying consequences in the aftermath of monetary policy shock. Accordingly information on the relative sensitiveness/insensitiveness of different sectors/ components of aggregate demand towards monetary policy actions furnish valuable insights to monetary authorities in framing appropriate policy. Originality/value The work carried out in the present paper is motivated by the fact that although a number of studies have examined the monetary transmission mechanism in India, a very few studies examining the differential impact of monetary policy action. However, to the best of the knowledge, there is no such studies, which have examined the differential impact of monetary policy in the structural macro-econometric framework. The paper will enrich the existing literature by providing a detailed account of the differential impact of monetary policy among the components of both aggregate demand and aggregate supply in response to an interest rate hike, as well as a decrease in the money supply.

Economic effects of monetary policy in Russia: What do large datasets tell us?

2020 ◽  
pp. 31-53 ◽  
Author(s):  
Anna A. Pestova ◽  
Natalia A. Rostova
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Economic Activity ◽  
Global Financial Crisis ◽  
Exchange Rate Regime ◽  
Aggregate Demand ◽  
Economic Effects ◽  
Theoretical Concepts ◽  
Empirical Estimates

Is the Bank of Russia able to control inflation and, at the same time, manage aggregate demand using its interest rate instruments? In other words, are empirical estimates of the effects of monetary policy in Russia consistent with the theoretical concepts and experience of advanced economies? This paper is aimed at addressing these issues. Unlike previous research, we employ “big data” — a large dataset of macroeconomic and financial data — to estimate the effects of monetary policy in Russia. We focus exclusively on the period after the 2008—2009 global financial crisis when the Bank of Russia announced the abandoning of its fixed ruble exchange rate regime and started to gradually transit to an interest rate management. Our estimation results do not confirm standard responses of key economic activity and price variables to tightening of monetary policy. Specifically, our estimates do not reveal a statistically significant restraining effect of the Bank of Russia’s policy of high interest rates on inflation in recent years. At the same time, we find a significant deteriorating effect of the monetary tightening on economic activity indicators: according to our conservative estimates, each of the key rate increases occurred in March and December 2014 had led to a decrease in the industrial production index by about 0.2 percentage points within a year.

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