Course work in macroeconomics

CHAPTER 1: Instruments, types and models of monetary policy.

1.1 Monetary policy instruments

For the concept of the essence of monetary policy, it seems appropriate to give it a more detailed description in the system aspect through a description of the following five main elements: objects, subjects, goals, tools, technology.

The object in the monetary policy system are, first of all, monetary funds (financial assets) that ensure the reproduction of goods and services. In addition, the institutions include the monetary institutions of the country's economy. The subjects of monetary policy are government agencies that, in accordance with the legislation of the country, are authorized to carry out state regulation of cash flows and the activities of the monetary sector institutions.

         The process of formulating monetary policy objectives consists of the following steps:

- At the first stage, the final goals of monetary policy are set in the form of control figures for economic growth, inflation, balance of payments.

- At the second stage, the intermediate objectives of monetary policy are determined in the form of specific quantitative monetary indicators.

- At the third stage, the operational objectives of the monetary policy are set. A circle of monetary indicators is determined which is influenced by the central bank (for example, interest rates set by the central bank, prudential (foreseeable, foreseeable) supervision standards, central bank reserves, etc.).

         Thus, monetary policy is to change the money supply in order to stabilize the total volume of production, employment and price levels. There are ultimate goals of monetary policy: high employment, economic growth, price stability, interest rate stability, stability in the financial market, and exchange rate stability.

          Turning to main instruments of monetary policy, there are commonly perceived to be that the central bank ensures the achievement of the desired result of the macroeconomic effect by using leverage of economic impact. Monetary policy instruments are divided into:

Direct (administrative):

- interest rate limits;

- limits on the volume of operations (loans);

- open-market operations;

- the reserve ratio;

- the discount rate;

            They are most effective in a crisis of the credit system, in conditions of a poorly developed domestic financial market, but have a drawback - they can contribute to the outflow of funds to foreign markets and into the shadow economy.

Indirect (economic):

- change in discount rate (refinancing rate);

- operations on the open market;

- change in reserve requirements;

- lending limits;

         Advantage - they act effectively on the regulatory object and do not cause imbalances in the economy, suggest a high degree of development of self-regulation processes at the macro level.

General - affecting the loan capital market as a whole.

Selective - The Central Bank acts on individual credit institutions or their groups, or on certain types of banking activities.