Monetary policy. Monetary policy

The impact on macroeconomic processes (inflation, economic growth, unemployment) is carried out through monetary regulation.

Typically, the monetary policy of the central bank is aimed at achieving and maintaining financial stabilization, primarily strengthening the exchange rate of the national currency and ensuring the stability of the country's balance of payments.

Monetary regulation- this is a set of specific measures of the central bank aimed at changing the amount of money supply in circulation, the volume of loans, the level of interest rates and other indicators of money circulation and the loan capital market.

Monetary policy is an integral part of the unified state economic policy. State economic policy should include measures to solve problems in each block. The Central Bank performs its part - monetary policy, it is responsible for its implementation.

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Subtitles

Monetary Policy Instruments

Monetary policy instruments that enable the central bank to control the amount of money supply:

• discount interest rate, refinancing rate

Restrictive (restrictive) monetary policy in the short term

Restrictive (restrictive) monetary policy in the short term leads to a decrease in the interest rate.

The role of monetary policy in the economy

The role of monetary policy in economic development is to achieve the maximum possible equilibrium in the money market [ ], i.e. maintain a balance between the amount of money in circulation and the need for it.

Types of monetary policies

• Tight - aimed at maintaining a certain amount of money supply.
• Flexible - aimed at regulating the interest rate.

There are different types of monetary policy:

1. Stimulating- carried out during a recession and is aimed at “cheering up” the economy, stimulating the growth of business activity in order to combat unemployment.
2. Containing- carried out during a boom period and is aimed at reducing business activity in order to combat inflation.

Expansionary monetary policy involves the central bank taking measures to increase the supply of money. Its tools are:

• reduction in reserve requirements
• reduction in discount rate
• purchase of government securities by the central bank.

Contractionary (restrictive) monetary policy consists of the central bank using measures to reduce the supply of money. These include:

• increasing the norm of reserve requirements
• increase in interest rate
• sale by the central bank of government securities.

Monetary Policy Methods- a set of techniques and operations through which subjects of monetary policy influence objects to achieve their goals.

• Direct methods are administrative measures in the form of various central bank directives regarding the volume of money supply and prices in the financial market. Limits on lending growth or deposit attraction are examples of quantitative controls. The implementation of these methods gives the fastest economic effect from the point of view of the central bank for the maximum volume or price of deposits and loans, for quantitative and qualitative variables of monetary policy. When using direct methods, time lags are reduced. Time lags are a certain period of time between the moment the need arises to apply a particular measure in the field of monetary policy and the awareness of such a need, as well as between the awareness of the need, the development of an opinion and the beginning of implementation.
• Indirect methods of regulating monetary policy affect the motivation of behavior of business entities using market mechanisms, have a large time lag, and the consequences of their use are less predictable than when using direct methods. However, their use does not lead to market distortions. Accordingly, the use of indirect methods is directly related to the degree of development of the money market. The transition to indirect methods is characteristic of the global process of liberalization, increasing the degree of independence of central banks.

There are also general and selective methods:

• General methods are predominantly indirect, affecting the money market as a whole.
• Selective methods regulate specific types of credit and are mainly prescriptive in nature. Thanks to these methods, private problems are solved, such as limiting the issuance of loans to certain banks and refinancing on preferential terms.

Open market operations

The Central Bank's sale of government securities on open markets to commercial banks reduces banks' reserves, and therefore reduces banks' lending capabilities, increasing the interest rate. This method of monetary policy is applied in the short term and has great flexibility.

Change in the minimum reserve ratio

Increasing the reserve ratio by the central bank reduces excess reserves (which can be loaned out), thereby reducing the bank's ability to expand the money supply through lending. This means of regulating the money supply is usually used in the long term.

Change in discount rate

The rate charged by the Central Bank for loans made to commercial banks is called the discount rate. With a decrease in the discount rate, the demand of commercial banks for Central Bank loans increases. At the same time, the reserves of commercial banks and their ability to provide loans to entrepreneurs and the population increase. Bank interest rates for loans are also reduced. The supply of money in the country increases. On the contrary, when it is necessary to reduce business activity by reducing the money supply in the country, the central bank raises the discount rate. Raising the discount rate is also a method of fighting inflation. Depending on the economic situation, the central bank resorts to a policy of “cheap” and “expensive” money.

Cheap money policy

It is carried out during a period of low market conditions. The central bank increases the supply of money by purchasing government securities on the open market, lowering the reserve ratio, and lowering the discount rate. This lowers the interest rate, increases investment and increases business activity.

Dear money policy

It is carried out by the central bank primarily as an anti-inflationary policy. In order to reduce the money supply, money emission is limited, government securities are sold on the open market, the minimum reserve ratio is increased, and the discount rate is increased.

Along with the listed methods of state regulation, which have an internal economic focus, there are special measures of external economic regulation. These include measures to stimulate the export of goods, services, capital, know-how, and management services. These are export credits, guarantees of export loans and investments abroad, the introduction and abolition of quotas, and changes in the value of duties in foreign trade.

Monetary Policy Instruments

Monetary base Monetary policy can be implemented by changing the volume of the monetary base. Central banks use open market operations to change the size of the monetary base. The central bank buys or sells reserve assets (usually financial instruments such as bonds) in exchange for money deposited at the central bank. These deposits can be converted into cash. Together, these cash and deposits make up the monetary base, which is the central bank's liabilities denominated in its own currency. Typically, other banks can use the monetary base as a fractional reserve and expand the total money supply in circulation.

Required reserves norm Monetary policy can be implemented by changing the amount of assets that banks must hold in central bank reserves. Banks hold only a small portion of their assets in cash, available for instant withdrawal. The main assets are not so liquid - mortgages and loans. By changing the reserve ratio, the central bank changes the amount of funds available for lending. The central bank usually does not change reserve requirements often, since this creates volatile changes in the money supply due to the action of the credit multiplier.

Discount rate Rate lending means that commercial banks and other depository institutions have the right to borrow reserves from the Central Bank at a discount rate. This rate is usually lower than short-term capital market (Treasury bills) rates.

Interest rate A reduction in the money supply can be achieved indirectly by increasing nominal interest rates. Banking regulators in different countries have varying levels of control over commercial interest rates. In the United States, the Federal Reserve can set the discount rate and also achieve the required Federal Funds Rate through open market operations. This rate has a significant effect on other market interest rates, but there is no clear connection. In the United States, open market operations occupy a relatively small part of the total volume of the securities market. It is impossible to establish independent indicators for both the monetary base and the interest rate, because their values ​​are changed by a common instrument - open market operations.

State monetary policy

Monetary policy- is a state policy affecting the amount of money in circulation in order to ensure price stability, full employment of the population and growth in real output. The Central Bank implements monetary policy.

The impact on macroeconomic processes (inflation, economic growth, unemployment) is carried out through monetary regulation.

Typically, the Central Bank's monetary policy is aimed at achieving and maintaining financial stabilization, primarily strengthening the exchange rate of the national currency and ensuring the stability of the country's balance of payments.

Monetary regulation- this is a set of specific measures of the central bank aimed at changing the money supply in circulation, the volume of loans, the level of interest rates and other indicators of money circulation and the loan capital market.

Monetary policy is an integral part of the unified state economic policy. State economic policy should include measures to solve problems in each block. The Central Bank performs its part - monetary policy, it is responsible for its implementation.

Types of monetary policies

• Tight - aimed at maintaining a certain amount of money supply.
• Flexible - aimed at regulating the interest rate.

There are different types of monetary policy:

1. Stimulating- carried out during a recession and is aimed at “cheering up” the economy, stimulating the growth of business activity in order to combat unemployment.
2. Containing- carried out during a boom period and is aimed at reducing business activity in order to combat inflation.

Expansionary monetary policy involves the central bank taking measures to increase the supply of money. Its tools are:

• reduction in reserve requirements
• reduction in interest rate
• purchase of government securities by the central bank.

Contractionary (restrictive) monetary policy consists of the central bank using measures to reduce the supply of money. These include:

• increase in reserve requirements
• increase in interest rate
• sale by the central bank of government securities.

Monetary Policy Methods- a set of techniques and operations through which subjects of monetary policy influence objects to achieve their goals.

• Direct methods - administrative measures in the form of various directives of the Central Bank regarding the volume of money supply and prices in the financial market. Limits on lending growth or deposit attraction are examples of quantitative controls. The implementation of these methods gives the fastest economic effect from the point of view of the central bank for the maximum volume or price of deposits and loans, for quantitative and qualitative variables of monetary policy. When using direct methods, time lags are reduced. Time lags are a certain period of time between the moment the need arises to apply a particular measure in the field of monetary policy and the awareness of such a need, as well as between the awareness of the need, the development of an opinion and the beginning of implementation.
• Indirect methods of regulating monetary policy affect the motivation of behavior of business entities using market mechanisms, have a large time lag, and the consequences of their use are less predictable than when using direct methods. However, their use does not lead to market distortions. Accordingly, the use of indirect methods is directly related to the degree of development of the money market. The transition to indirect methods is characteristic of the global process of liberalization, increasing the degree of independence of central banks.

There are also general and selective methods:

• General methods are predominantly indirect, affecting the money market as a whole.
• Selective methods regulate specific types of credit and are mainly prescriptive in nature. Thanks to these methods, private problems are solved, such as limiting the issuance of loans to certain banks and refinancing on preferential terms.

The sale (purchase) by the Central Bank of government securities on open markets by commercial banks reduces (increases) bank reserves, and therefore reduces (increases) the lending capabilities of banks, increasing (decreasing) the interest rate. This method of monetary policy is applied in the short term and has great flexibility.

Change in the minimum reserve ratio.

Increasing the reserve ratio by the central bank reduces excess reserves (which can be loaned out), thereby reducing the bank's ability to expand the money supply through lending. This means of regulating the money supply is usually used in the long term.

Change in discount rate.

The rate charged by the central bank for loans made to commercial banks is called the discount rate. With a decrease in the discount rate, the demand of commercial banks for Central Bank loans increases. At the same time, the reserves of commercial banks and their ability to provide loans to entrepreneurs and the population increase. Bank interest rates for loans are also reduced. The supply of money in the country increases. On the contrary, when it is necessary to reduce business activity by reducing the money supply in the country, the central bank increases the discount rate. Increasing the discount rate is also a technique to combat inflation. Depending on the economic situation, the central bank resorts to a policy of “cheap” and “expensive” money.

Cheap money policy

It is carried out during a period of low market conditions. The central bank increases the supply of money by purchasing government securities on the open market, lowering the reserve ratio, and lowering the discount rate. This lowers the interest rate, increases investment and increases business activity.

Dear money policy

It is carried out by the Central Bank, first of all, as an anti-inflationary policy. In order to reduce the money supply, money emission is limited, government securities are sold on the open market, the minimum reserve ratio is increased, and the discount rate is increased.

Along with the listed methods of state regulation, which have an internal economic focus, there are special measures of external economic regulation. These include measures to stimulate the export of goods, services, capital, know-how, and management services. These are export credits, guarantees of export loans and investments abroad, the introduction and abolition of quotas, and changes in the value of duties in foreign trade.

Monetary Policy Instruments

Monetary base Monetary policy can be implemented by changing the volume of the monetary base. Central banks use open market operations to change the size of the monetary base. The central bank buys or sells reserve assets (usually financial instruments such as bonds) in exchange for money deposited at the central bank. These deposits can be converted into cash. Together, these cash and deposits make up the monetary base, which is the central bank's liabilities denominated in its own currency. Typically, other banks can use the monetary base as a fractional reserve and expand the total money supply in circulation.

Reserve requirements Monetary authorities exercise regulatory control over commercial banks. Monetary policy can be implemented by changing the amount of assets that banks must hold in central bank reserves. Banks hold only a small portion of their assets in cash, available for instant withdrawal. The remainder is inverted into illiquid assets such as mortgages and loans. By changing the liquidity ratio, the central bank changes the volume of available credit funds. The central bank usually does not change reserve requirements often, since this creates volatile changes in the money supply due to the action of the credit multiplier.

Discount rate Discount rate lending is where commercial banks and other depository institutions have the right to borrow reserves from the Central Bank at a discount rate. This rate is usually set below short-term capital market (Treasury bills) rates. This allows institutions to change lending terms (that is, the amount of money they can lend out), thereby affecting the money supply.

Interest rate A reduction in the money supply can be achieved indirectly by increasing nominal interest rates. Monetary authorities in different countries have varying levels of control over interest rates throughout the economy. In the United States, the Federal Reserve can set the discount rate and also achieve the required Federal Funds Rate through open market operations. This rate has a significant effect on other market interest rates, but there is no perfect relationship. In the United States, open market operations account for a relatively small portion of the total volume of the securities market. It is impossible to set independent targets for both the monetary base and the interest rate, because they are both changed by a single instrument - open market operations.

Currency Board A monetary board is a monetary arrangement that ties the monetary base of one country to an anchor country. Essentially, this manifests itself as a hard fixed exchange rate whereby the local currency in circulation is supported by the foreign currency of the anchor country at a fixed rate. Thus, in order to increase the local monetary base, an equivalent amount of foreign exchange must be held in reserves by the foreign exchange committee. This limits the ability of the local financial authority to inflate the money supply or pursue other goals.

see also

Literature

• Frederic Mishkin. "Economic Theory of Money, Banking and Financial Markets"

Wikimedia Foundation. 2010.

• Denezhnikovo
• Unit of account

See what “Monetary policy of the state” is in other dictionaries:

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Money-credit policy- Monetary policy is a government policy that influences the amount of money in circulation in order to ensure price stability, full employment and growth in real output. Impact on macroeconomic... ... Wikipedia

MONEY-CREDIT POLICY Legal dictionary

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Books

• Monetary policy as an integral part of the financial policy of the state, Arzumanova Lana Lvovna, Artemov Nikolay Mikhailovich, Gracheva Elena Yuryevna, The monograph is aimed at revealing the issues of the essence of monetary policy as an instrument of the financial policy of the state, disclosing the tasks and methods of monetary policy in ... Category: Economics Publisher: Prospekt, Buy for 477 RUR
• Monetary policy as an integral part of the state's financial policy (financial and legal aspect). Collective monograph,

Monetary (credit - money) policy of the state is a set of measures implemented by the Central Bank with the aim of influencing the level of bank interest by changing the mass of money in circulation.

Monetary policy is a type of countercyclical (stabilization) policy of the state. It is aimed at smoothing out cyclical fluctuations.

Highlight two types state monetary policy:

Cheap money policy (soft, expansionary, expansionist) - aimed at increasing the mass of money in circulation and reducing the level of bank interest. Used in times of economic crisis to stimulate economic growth with cheap credit.

The policy of “expensive” money (tough, narrowed, restrictive) - aimed at reducing the amount of money in circulation and increasing the level of bank interest. Used in conditions of high inflation, as well as during the recovery phase, to curb economic growth.

Monetary policy instruments include:

Discount rate (refinancing rate)- this is the interest rate at which the Central Bank issues loans to commercial banks. If the Central Bank raises the discount rate, the supply of money in circulation decreases, and credit becomes more expensive and less available to borrowers. A decrease in the discount rate leads to an increase in the mass of money in circulation and a decrease in the bank interest rate.

Mandatory bank reserve ratio- this is a percentage of funds attracted by commercial banks, which they are obliged to keep in the Central Bank in perpetual and interest-free accounts. If the Central Bank increases the required reserve ratio, this leads to a decrease in the amount of money in circulation and an increase in the level of bank interest. A decrease in the required reserve ratio leads to an increase in the money supply in circulation and a decrease in the level of bank interest. The mandatory bank reserve norm is an administrative instrument in nature. If commercial banks do not comply with the reserve requirements of the Central Bank, it has the right to use penalties against them, as well as to suspend their license.

Open Market Operations of the Central Bank– these are transactions for the purchase and sale of government securities and foreign currency. The Sami are a popular instrument of monetary policy at the present stage. It is market-oriented in nature. If there is an excess money supply in the economy, the Central Bank begins to sell government securities to investors. As a result, the amount of money in circulation decreases, and the bank interest rate increases. If the economy does not have enough money, the Central Bank begins to buy government securities. The amount of money in circulation increases, and the bank interest rate decreases.

State fiscal policy

Fiscal (budgetary - tax) policy of the state is a set of measures aimed at regulating the business cycle by changing the expenses and revenues of the state budget.

It is based on the following provisions:

An increase in government spending increases aggregate demand, which leads to an expansion of production volumes, hence reducing unemployment. In this case, a multiplier effect occurs, due to which aggregate demand grows to a greater extent than budget expenditures;

An increase in taxes reduces the disposable income of business entities and reduces aggregate demand. In this case, a multiplier effect also arises, but it is weaker, since changes in taxation affect not only consumption, but also savings.

Fiscal policy is carried out by the government. Its instruments influence both aggregate demand (the amount of total expenses in the economy) and aggregate supply (business activity and the amount of costs of firms). Fiscal policy instruments include taxes, the public procurement system, and government transfers.

Fiscal policy is divided into discretionary and non-discretionary (automatic).

Non-discretionary fiscal policy represents automatic changes in the fiscal system that occur under the influence of the economic situation without special government decisions. It is the result of the action of built-in stabilizers. A built-in stabilizer is an element of the economic system that automatically responds to changes in the phase of the economic cycle. Built-in stabilizers include social payments from the budget and progressive taxes. During an economic downturn, tax payments decrease, especially with progressive rates, and social spending increases (unemployment benefits, compensation). Thus, thanks to the built-in stabilizers, certain gains in income occur during a recession (less tax burden, more benefits), and fluctuations in aggregate demand become less significant. During an economic recovery, tax revenues automatically increase and social benefits are reduced, which helps combat inflation and overheating of the economy.

It should be noted that the built-in stabilizers in the Russian fiscal system are weak, since the bulk of taxes are not progressive, but proportional. In addition, budget legislation does not provide for an increase in social spending when the economic situation in the country worsens.

Discretionary fiscal policy– legislative changes in taxation and government spending to influence the level of economic activity. She may be expansionist (stimulating), suggesting an increase in government spending and/or a decrease in tax rates, or restrictive (restraining), suggesting a reduction in government spending or an increase in taxation.

When carrying out fiscal policy, it is necessary to take into account the influence of the level of taxation on the amount of tax revenues, which is illustrated by the A. Laffer curve.

In accordance with this pattern, an increase in the share of tax withdrawals from an enterprise's revenue to a certain level of taxation leads to an increase in tax revenues to the budget system. However, a further increase in taxes leads to a decrease in revenues, since enterprises do not have funds left even for simple reproduction. As a result, payers are forced to either evade paying taxes or reduce production volumes.

This pattern also leads to the fact that if a country has a high level of taxation, then tax cuts can stimulate economic growth, which will subsequently lead to an increase in tax revenues.

% tax

Tax revenues to the budget, %

The main disadvantage of discretionary fiscal policy is the presence of “time lags”. In other words, it takes time to identify any changes in the economy (recognition lag), to change budget and tax legislation (decision-making lag), to obtain the effect of adopted changes (impact lag). During this time, the situation in the economy may change, and the government may not achieve the desired effect. Therefore, to solve macroeconomic problems, fiscal policy is used in conjunction with other methods of state regulation of the economy.

Monetary policy consists of changing the money supply ( MS ) in order to stabilize aggregate output, employment and price levels. Or in other words: monetary policy causes an increase MS during a recession to encourage spending, and during inflation, on the contrary, it limits MS to limit costs.

Monetary regulation, unlike budgetary regulation, is based on the tools of the market itself. Indicators such as the interest rate, the volume of monetary and credit resources and some others become “benchmarks”, indicators that are directly influenced and through which the “impulse” of monetary policy is transmitted. By using one or another indicator, the state expects to cause changes in the capital market conditions.

The ultimate goal of regulation is to influence the economic situation and create conditions for balanced economic growth. A necessary condition for achieving the set goals is an adequate response of investors and consumers to changes in the volume and structure of available monetary resources. The monetary and credit factors of development themselves should be fairly easy to regulate.

The goals and instruments of monetary policy can be grouped as follows.

Final ( strategic ) goals :

1) mitigation of cyclical fluctuations in production and employment.

2) ensuring stable non-inflationary growth.

Intermediate targets :

a) money supply;

b) interest rate;

c) exchange rate.

The strategic goal of monetary policy is to ensure price stability, full employment and real output growth. However, current monetary policy focuses on more specific and accessible goals than this strategic goal.

A condition for carrying out a full-fledged monetary policy is the preliminary determination of the following basic parameters:

a) the rate of price growth (inflation) and the level of inflation expectations (the level of inflation is one of the conditions for determining the interest rate, the latter allows us to assess the degree of rigidity of the monetary policy being pursued);

b) monetary (credit) multiplier (the value of the multiplier is one of the conditions for determining the measure of sufficiency of emission decisions);

c) the actual level of the interest rate;

d) the state of the money market.

Regulatory methods in the field of monetary circulation can be divided into direct and indirect.

At direct regulation the following are used tools: a) lending limits; b) direct regulation of interest rates;

Tools indirect regulation are:

a) open market operations;

b) change in the required reserve ratio;

c) change in the discount rate (refinancing rate)

d) voluntary agreements.

The effectiveness of using indirect regulatory instruments is closely related to the degree of development of the money market. In transition economies, especially in the first stages of transformation, both direct and indirect instruments are used with the gradual displacement of the former by the latter. Often, in the process of forming a banking system in countries transitioning to market relations, increasing the degree of independence of the Central Bank in conducting monetary policy is accompanied by the desire of the monetary authorities to achieve the final goal, while it is actually able to control only certain intermediate nominal values.

Let's consider the instruments of indirect regulation of the monetary system.

Open market operations- the most important means of control MS in developed countries. The use of this instrument of monetary regulation in countries where the stock market is at the stage of formation is very difficult. The term "open market operations" refers to the buying and selling of government (short-term) securities (usually in the secondary market, since central bank activity in primary markets is prohibited or restricted by law in many countries) to commercial banks, firms and the general public. Often such transactions are carried out by the Central Bank in the form of repurchase agreements (REPOs). In this case, the bank, for example, sells securities with an obligation to buy them back at a certain (higher) price after a certain period. The interest on funds provided in exchange for securities is the difference between the sale price and the repurchase price. Repurchase agreements are also widespread in the activities of commercial banks and firms.

The most important aspect of open market operations is that when the Central Bank buys government securities from commercial banks, the reserves, and therefore the lending capacity, of the commercial banks increase. On the contrary, when the Central Bank sells government securities, commercial banks' reserves and lending capabilities decrease. Thus, by influencing the monetary base through open market operations, the Central Bank regulates the size of the money supply in the economy.

The purchase and sale of government securities is carried out for two purposes:

· financing and refinancing of the current state budget deficit and public debt;

· macroeconomic regulation.

Change in required reserve ratio. Required reserves are the portion of the amount of deposits that commercial banks must keep as non-interest bearing deposits with the Central Bank (forms of storage may vary by country). Required reserve ratios vary in size depending on the type of deposits (for example, for time deposits they are lower than for demand deposits), as well as depending on the size of the banks (for small banks they are usually lower than for large ones). The higher the Central Bank sets the required reserve ratio, the smaller the share of funds that commercial banks can use for active operations. Either banks will lose excess reserves, reducing their ability to create money through lending, or they will find their reserves insufficient and will be forced to reduce their checking accounts and thereby the money supply. Increase in reserve ratio ( rr ) reduces the money multiplier and leads to a reduction in the money supply. Lowering the reserve ratio converts required reserves into excess reserves and thereby increases the ability of banks to create new money through lending. Thus, by changing the required reserve ratio, the Central Bank influences the dynamics of money supply. An increase in the reserve ratio increases the amount of required reserves that banks must hold.

Discount rate (refinancing rate). Just as commercial banks collect interest payments on their loans, the Central Bank collects interest payments on loans made to commercial banks. This interest rate is called the "discount rate." This transaction is similar to a private individual receiving a loan from a commercial bank.

From the point of view of commercial banks, the discount rate represents the cost incurred in acquiring reserves. Consequently, a fall in the discount rate encourages commercial banks to acquire additional reserves by borrowing from the Central Bank. Commercial bank lending, backed by these new reserves, increases MS . And, conversely, an increase in the discount rate reduces the interest of commercial banks in obtaining additional reserves by borrowing from the Central Bank, and consequently, the operations of commercial banks to provide loans decrease. In addition, when receiving a more expensive loan, commercial banks also increase their lending rates. A wave of credit compression and rise in the price of money is sweeping across the entire system. The supply of money in the economy decreases. Therefore, increasing the discount rate corresponds to the desire of the Central Bank to limit MS . Consequently, by manipulating the level of the discount rate, the Central Bank carries out a kind of regulation of the “credit price”.

By changing the rate, the Central Bank gives the private sector a signal about the desired activation or, conversely, curbing business activity. If the private sector does not respond, harsher measures are used, such as open market operations.

Voluntary agreements. The Central Bank sometimes strives to conclude business agreements with commercial banks. This method allows you to make decisions quickly and without much bureaucracy.

With the help of these instruments, the Central Bank implements the goals of monetary policy:

· maintaining the money supply at a certain level (tight monetary policy) or

· maintaining interest rates at a certain level (flexible monetary policy).

Monetary policy options are interpreted differently on a money market chart. When constructing a graphical diagram of the money market, it was assumed that the supply of money is graphically represented as a vertical line, i.e. that the money supply is constant and does not depend on the interest rate. In reality, the supply of money depends on the goals that are set for the country’s monetary system.

1. A strict policy of maintaining the money supply corresponds to a vertical money supply curve at the level of the target money supply, i.e. maintaining a constant level of money in circulation ( MS 1 in Fig. 13.3).

2. The goal of monetary policy may be to maintain a fixed interest rate. A flexible monetary policy can be represented by a horizontal direct money supply at the level of the target interest rate ( MS 2 in Fig. 13.3).

3. The third option (intermediate) of graphical display of money supply is an inclined curve ( MS 3 in Fig. 13.3). This form of the money supply schedule shows that monetary policy allows for changes in both the money supply in circulation and the interest rate.

Depending on the slope of the curve MS a change in the demand for money will have a greater effect on either the money supply or the interest rate.

MS- schedule of money supply under monetary policy aimed at maintaining a constant mass of money in circulation; MS 2 - schedule of money supply with a flexible monetary policy; MS 3 - a schedule of money supply assuming changes in both the mass of money in circulation and the interest rate.

The choice of one or another monetary policy goal depends on the factors that caused a shift in the demand for money.

1. If this shift is caused by a cyclical change in real output, then it is desirable to “smooth out” these changes. In the case of cyclical "expansion" - allow an increase in the interest rate; the consequence of rising interest rates will be a decrease in business activity. And, conversely, in the event of a cyclical downturn, or “squeeze,” allow the interest rate to fall and achieve an increase in economic activity. In this case, the graphical representation of the money supply will be a vertical or inclined curve MS (Fig. 13.4, a).

2. If the shift in the demand for money is caused solely by rising prices, then any increase in the money supply will “unwind” the inflationary spiral. The goal of monetary policy in this case will be to maintain the money supply in circulation at a certain fixed level. The graphical display of the money supply in this case will be a vertical line MS (Fig. 13.4, a).

3. Considering the money market, it was assumed that the velocity of circulation of the money supply is constant. But it can and does change under the influence, for example, of changes in the organization of money circulation in the country, which will affect the interest rate, the volume of production, and prices (equation of exchange). If the Central Bank sets the task of neutralizing the impact of changes in the velocity of circulation of money on the national economy, it chooses a flexible monetary policy: the mass of money in circulation should increase in the same proportion in which the velocity of circulation of money has decreased, and vice versa, with an increase in the velocity of circulation of money in a certain proportion, the money supply must change in the same proportion. In this case, the graphical display of the money supply will be a horizontal line (Fig. 13.4, b).

The state's monetary policy is an integral part of the system of management and control of the economy. Its conductor is the central bank (CB). Through the methods and methods available to him, he influences cash flows and business activity.

In order to understand in more detail how and for what purposes the state’s monetary policy is implemented, it is necessary to determine its (the state’s) functions and tasks.

Functions of the state

Government functions are not limited to regulating the economy, but extend to other areas of life. In all matters in which society needs help and control, the “hand of state power” must be present.

Its functions include:

1. Maintaining economic stability and growth.
2. Protection of the rights and freedoms of all persons - individuals and legal entities.
3. Control of money movement.
4. Redistribution of cash flows.
5. Production activities.
6. Foreign economic and political activities.
7. Promoting the development of fundamental science.
8. Solving environmental and other global issues.

Each of these functions has its own institutions, goals and objectives, tools and methods by which they are implemented. In particular, monetary policy and its objectives serve to deal with the financial market, which is part of the economic system.

Goals of economic regulation at the state level

In order to manage the economy, you need to understand where the system is at the moment and what the main goals are. After this, the tools that will best influence the current situation and lead to the desired result are determined.

What could be the goals of economic regulation:

The state's monetary and fiscal policies are used to manage the country's economy. The first influences the system through the money market, the second - through budget and tax mechanisms.

Objects and participants of monetary policy

The goals and instruments of monetary policy are implemented through its subjects, which include the Central Bank, banks and other money market participants. The objects are indicators of the money market: demand, supply, price. There is such a thing as the money market, which is part of the financial market. The same laws apply here as in any other market. Under the influence of supply and demand factors, an equilibrium price is formed.

If supply increases and demand remains the same, then the cost of money (nominal interest rate) decreases, and vice versa. Market mechanisms seek to balance supply and demand by changing prices. State monetary policy can be briefly described as control over the indicators of the money market to achieve a certain level of their value. In the event of rapid economic growth, in order to prevent the subsequent inevitable sharp decline, the Central Bank can influence the money market in order to change their value.

With a changing velocity of money circulation, the Central Bank must adjust its quantity so that there is enough money, but there is no excess.

Financial Policy Concepts

Monetary policy tools and methods depend on the chosen concept. In modern conditions there are only two of them:

1. Cheap money, or in scientific language - the concept of credit expansion.
2. Expensive money, in other words, the concept of credit restriction.

Credit expansion instruments are aimed at increasing the resources of banks, which means the possibility of obtaining a large number of loans for the population and enterprises. With the help of such actions, the amount of money increases.

Credit restriction means reducing the activity of banks in lending to reduce the amount of money.

The choice of concept determines the set of tools and methods that will be used to achieve goals in the near future and longer term. But this task is complex, requiring a comprehensive analysis of the situation in the financial market and in the economy as a whole, coordination of the actions of money market entities with the general course of the country’s policy.

Monetary policy methods, idea of ​​time lags

State monetary policy methods are specific techniques by which the central and commercial banks influence the demand and supply of money.

Economists distinguish two types of methods: direct and indirect (indirect).

The banking system must be flexible enough to respond in a timely manner to changes in factors and indicators in the money market. But no matter how quickly certain measures to regulate the money market are implemented, a certain time passes, which is called a time lag, between awareness of the problem, the development of a system of measures of influence and their application.

It should also be taken into account that, regardless of the tools and methods used by the state’s monetary policy, a certain time also passes between their implementation and the reaction of economic entities.

Time lags make it difficult to analyze and develop solutions to stabilize the situation in the money market. The state's monetary policy must be flexible and thoughtful enough to take into account their influence.

Direct methods of influencing money circulation

The Central Bank has the ability to clearly regulate the activities of banks: set limits on the size of loans and deposits, maximum and minimum interest levels. Such methods are called direct.

The positive aspects of direct methods are:

• reduction of time lags;
• low costs for their implementation;
• quite predictable results.

But there are also disadvantages to such techniques:

• violation of competitive conditions in the financial services market;
• ineffective distribution of available funds;
• reduction in the attractiveness of banking services.

The monetary or monetary policy of the state using such methods, at first glance, meets all the needs of public administration. But it can lead to banks ceasing to perform their functions, and demand will turn to other financial organizations whose activities are not directly regulated by the state. Thus, the Central Bank may lose control over money circulation.

Direct methods are crude interference in market mechanisms; as a result of such actions, the money supply can sharply decrease, which will lead to a decline in production.

Indirect methods of monetary policy

Increasingly, the Central Banks began to abandon direct methods of intervention in monetary circulation. Strict directives are applied only in conditions of a serious economic crisis and when quick action is needed.

In other cases, the Central Bank can influence the situation using softer, indirect methods. They stimulate the desired behavior of market participants and motivate them to take certain actions.

Disadvantages of indirect methods:

• increased time lags;
• possible large error in forecasting the results of certain measures;
• their effectiveness is related to the degree of development of market mechanisms.

Advantages of indirect regulation:

• absence of distortion of market mechanisms;
• respect for the rights of market entities;
• preventing the flow of capital to shadow markets;
• they do not lead to sharp, shock changes in the amount of money and a decrease in the level of production.

Monetary Policy Toolkit

The means by which the Central Bank influences money market objects are instruments of state monetary policy.

One of them is the reserve ratio. This is a certain percentage of liabilities, the amount that banks are obliged to keep in the Central Bank. If the amount of the reserve increases, then the amount of free money at the disposal of banks naturally decreases. This prevents additional money from being released into the market. If the reserve ratio decreases, then having additional funds, banks can increase the number of loans issued (in monetary terms). As a result, the money supply will increase.

Monetary or monetary policy of the state is also implemented through the regulation of interest rates. The Central Bank lends to banks. If the interest on such a loan (refinancing rate) decreases, then funds become more accessible to banks. If interest increases, then commercial banks either refuse the loan or are forced to raise interest on loans issued. In any case, an increase in the refinancing rate leads to curbing the growth of the amount of money in circulation.

The third instrument of influence of the Central Bank on the amount of money is its actions on the securities market. This includes buying and selling government securities. This tool is very widely used in world practice today. When the Central Bank buys securities, it has the effect of issuing money, and when it sells it, it has the effect of withdrawing money from circulation.

Monetary policy objectives and instruments are closely related. Depending on the objectives, funds can be used in two different directions, stimulating or suppressing business activity.

Additional tools

The methods discussed above refer to traditional tools. But there are several other means, for example, currency regulation and setting limits for increasing the volume of money in circulation.

Monetary policy as a type of stabilization policy involves analyzing the causes and consequences of growth in the money supply. Not only crisis phenomena in the economy require special measures, but also a sharp increase in production, which may result in uncontrolled inflation and deformation of market mechanisms. According to the theory of cycles, after a phase of active economic growth, a sharp and deep recession begins. To smooth out fluctuations and prevent the market situation from getting out of control, the Central Bank limits the amount of money and the speed of its increase.

Currency regulation involves the formation, forecasting and regulation of currency flows, exchange rates, and external payments. This is an important tool that can limit the outflow and inflow of capital into the country.

Currency regulation can be carried out by direct methods: setting the boundaries of exchange rate fluctuations (currency corridor), fixing it at one level, etc. But more often indirect methods are used, such as buying and selling currency on open markets. This mechanism is similar to the Central Bank's operations with securities. To strengthen the exchange rate, he sells foreign banknotes, and to reduce the exchange rate, he buys.

Regulation of the amount of money and the exchange rate contributes to the stable development of foreign economic and industrial activities of firms, as well as the financial stability of banks.

What determines the choice of Central Bank policy instruments?

Monetary policy, objectives, instruments and consequences of its implementation depend on many factors. Among them are:

To achieve the goals of regulating the money market, the state’s monetary policy must take into account all these factors, be flexible and consistent.

Monetary policy in Russia

State monetary policy: concept, types, tools, methods - all this creates a theoretical basis for decision-making. But assessing the activities of the Central Bank in practice is quite difficult.

In 2014, the economic situation in Russia changed a lot, and this also affected the financial market. The reason for this was external artificially created factors. Under these conditions, assessing the effectiveness of a particular economic policy is doubly difficult.

But in general we can say that the main tactical goals of the Central Bank are:

• curbing inflation rates;
• exchange rate management;
• stimulation of business activity.

Controlling the level of inflation has been the main task of the Central Bank of Russia over the past 10 years. In addition, the country’s open economy is subject to external influences, and there is no way not to interfere in the formation of the ruble exchange rate, so currency corridors are established. They plan to abandon this practice and continue to focus all efforts on stable low levels of inflation.

The Central Bank of the Russian Federation often uses the refinancing rate as an instrument of influence. The amount of money in circulation and transactions with securities are also regularly monitored.

The Central Bank of Russia has quite a lot of independence, which generally has a positive effect on the conduct of monetary policy. Contradictions in decisions made are becoming less and less common. Current goals and methods for achieving them are regularly analyzed and adjusted, which allows us to talk about the flexibility of monetary policy.