Positive Real Interest Rates are required to reduce inflation.
Negative Real IR's do not help rein prices.
This little much cannot be understood by the central bankers in high-inflation economies?
That works if the source of inflation is the money supply growth due to the deficit
Negative Real IR's do not help rein prices.
This little much cannot be understood by the central bankers in high-inflation economies?
That works if the source of inflation is the money supply growth due to the deficit
However, if the source of #inflation is supply-side shocks, then raising policy interest rates might hurt more.
For e.g. the Exchange rate shock which brings in imported inflation into the economy needs forex supply to counter the import/outflow demand.
IR is the painful lever
For e.g. the Exchange rate shock which brings in imported inflation into the economy needs forex supply to counter the import/outflow demand.
IR is the painful lever
yes, a higher CB Rate should technically curb aggregate demand and expenditures in the economy.
It can reduce the domestic money supply as bank borrowing declines and thereby reduces the monetary base.
Which should taper the imports & adjust the Current a/c.
Shock Therapy 101
It can reduce the domestic money supply as bank borrowing declines and thereby reduces the monetary base.
Which should taper the imports & adjust the Current a/c.
Shock Therapy 101
Management of the exchange rate through the interest rate, which depends on the direct action of the central bank, will only artificially solve the forex reserves shortage and trade gap related problems.
The longterm solution is to address all the risks of the external sector
The longterm solution is to address all the risks of the external sector
The Americans used the Capital Account to finance their Current Account Deficit.
I believe they needed $1.5 Bio inflow a decade back on a daily basis.
Most of the capital inflows came from #China, which parked the money in the USA #Treasuries to keep their currency competitive.
I believe they needed $1.5 Bio inflow a decade back on a daily basis.
Most of the capital inflows came from #China, which parked the money in the USA #Treasuries to keep their currency competitive.
But, at the end of the day, the Yanks only need to print the #Greenback to finance the dollar financing gap in the balance of payments.
They have been running a perpetual trade deficit since they took the American dollar off the bullion under #Nixon
Other countries cannot do this
They have been running a perpetual trade deficit since they took the American dollar off the bullion under #Nixon
Other countries cannot do this
So the apathy is that the indirect method is mostly being applied to problem-solving in #Macroeconomics and Int'. Economics to overcome short term woes.
Economists are suggesting a currency board to fight inflation arising due to budget deficits and the #monetization of debt.
Economists are suggesting a currency board to fight inflation arising due to budget deficits and the #monetization of debt.
The short term panacea of raising the policy rate is being presented to hedge against supply-side shocks such as energy and food prices, saving shortages, export decline, low FDI, profit repatriation by MNCs and portfolio investors, which translates into
#currency #volatility.
#currency #volatility.
In short, there is a wrong way of doing the right thing!!
Not just a right way of doing the right thing.
Depends on which mental and/or logical model you prefer to apply in your economic policy mix?
Not just a right way of doing the right thing.
Depends on which mental and/or logical model you prefer to apply in your economic policy mix?
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