Tag Archives: monetary policy

What is the benchmark used to measure the effectiveness of monetary policy?

My answer on Quora: There are different indicators one can look at to help assess if the monetary policy of a central bank is effective or not, but such assessments have been getting harder to make. On the surface On the surface, a central bank can be viewed as effective in its monetary policy if […]

Comment: On the Fed engaging with the public

Gillian Tett of the Financial Times recently posed this question in an opinion piece: “How should the Federal Reserve engage with the public?” Soon after becoming chairman of the Fed, Jerome Powell did something no other Fed chairperson (or perhaps any major central bank governor) has done before. He posted a video where he speaks […]

When inflation is running wild, what should governments do to the interest rates?

My answer on Quora: It depends on the source of inflation. Interest rates impact borrowing/savings decisions and can also send a signal about the seriousness of the central bank (whose mandate typically includes some kind of price stability). If inflation shoots up because of a supply shock, then there may not be much interest rates […]

What are economic structural factors?

My answer on Quora: The structural factors of an economy are those that do not change with the economic cycle. There are structural factors and there are cyclical factors. Think of a trend vs. variations around that trend. Structural factors relate to the supply-side of the economy and cyclical factors relate to the demand-side. Structural factors include laws (like […]

Why would a government fix an exchange rate?

My answer on Quora: A Central Bank may decide to fix the exchange rate of its currency relative to another currency to (1) anchor expectations and provide stability, (2) reduce fluctuations in import prices for local consumers and producers, and (3) reduce exchange rate risk in foreign financial transactions. Fixing the exchange rate comes at […]

How does credibility affect the cost of reducing inflation?

My answer on Quora: The credibility of a central bank plays a strong role in its ability to achieve its objectives, which often includes price stability (i.e. stable inflation around a desired target). If a central bank lacks credibility, investors and firms won’t have much confidence in the central banks ability to keep inflation around […]

What is the best way to reduce inflation in a developing country?

My answer on Quora: There are many ways to try to fight high inflation in developing countries because there can be many sources of high inflation. Ultimately, the key differences between developed and developing economies in the context of fighting high inflation often deal with the effectiveness of monetary policy and any reliance on imports […]

Can devaluing a country’s currency increase its foreign reserves?

My answer on Quora: It depends on the size and direction of the pressure on the currency before the devaluation, and how close the new value of the currency is relative to its market value. First, a devaluation implies that a central bank is moving its currency from one fixed exchange rate to another one where it is worth less, relative to the currency […]