How does the central bank combine taking care of the value of money by anti-inflationary tightening of monetary policy, including raising interest rates, with anti-crisis measures in a situation of high unemployment, i.e., in a situation in which the central bank anti-crisis eases monetary policy by, among other things, lowering interest rates?
In a situation of high inflation, the central bank anti-inflationarily raises interest rates. The side effect is to cool economic processes and weaken the economy. When there is a high level of unemployment in the economy, especially Keynsian unemployment and possibly structural unemployment then the central bank anti-crisis lowers interest rates. The side effect of the situation can be an increase in inflation. And what if the economy is plunged into a multi-faceted economic crisis, in which there is high unemployment, recession of the economy and high inflation. In such a situation there is stagflation. Due to high unemployment, the central bank may apply monetary easing. However, there is also high inflation at the same time, during which the central bank tightens monetary policy. Simultaneous easing and tightening of monetary policy can mean that there is no reaction at all regarding a possible change in strategy regarding monetary policy making. Then whether the central bank, caring about the value of money, will tighten monetary policy, including raising interest rates..., or, however, helping the government in conducting anti-crisis economic policy in an attempt to revive economic processes and contribute to the decline of high unemployment anti-crisis will ease monetary policy, including lowering interest rates, among other things, then other factors and determinants will probably decide, including mainly the factors determining the economic development of the country and/or the determinants of the formation of monetary policy taking into account monetary policy factors other than those mentioned above. Among these other factors and determinants of the formation of monetary policy may be the issue of influencing the formation of the national currency against other currencies.
I have described the key issues of the central banking problem in my articles below:
Synergy of post-2008 Anti-Crisis Policy of the Mild Monetary Policy of the Federal Reserve Bank and the European Central Bank
Article Synergy of post-2008 Anti-Crisis Policy of the Mild Monetary...
Analysis of the effects of post-2008 anti-crisis mild monetary policy of the Federal Reserve Bank and the European Central Bank
Article Analysis of the effects of post-2008 anti-crisis mild moneta...
A safe monetary central banking policy as a significant instrument for liquidity maintenance in the financial system
Article A safe monetary central banking policy as a significant inst...
ACTIVATING INTERVENTIONIST MONETARY POLICY OF THE EUROPEAN CENTRAL BANK IN THE CONTEXT OF THE SECURITY OF THE EUROPEAN FINANCIAL SYSTEM
Article ACTIVATING INTERVENTIONIST MONETARY POLICY OF THE EUROPEAN C...
Anti-crisis state intervention and created in media images of global financial crisis
Article Anti-crisis state intervention and created in media images o...
In view of the above, I address the following question to the esteemed community of scholars and researchers:
How does the central bank combine caring for the value of money by anti-inflationary tightening of monetary policy, including raising interest rates, with anti-crisis measures in a situation of high unemployment, i.e. in a situation in which the central bank anti-crisis eases monetary policy by, among other things, lowering interest rates?
How does the central bank combine taking care of the value of money with anti-crisis measures in a situation of high unemployment?
What do you think about this topic?
What is your opinion on this issue?
Please answer,
I invite everyone to join the discussion,
Thank you very much,
Best wishes,
Dariusz Prokopowicz
The above text is entirely my own work written by me on the basis of my research.
In writing this text, I did not use other sources or automatic text generation systems.
Copyright by Dariusz Prokopowicz
Central banks work hard to ensure that a nation's economy remains healthy. One way central banks accomplish this aim is by controlling the amount of money circulating in the economy. Their tools include influencing interest rates, setting reserve requirements, and employing open market operation tactics, among other approaches. Having the right quantity of money in circulation is crucial to ensuring a stable and sustainable economy.
In dire economic times, central banks can take open market operations a step further and institute a program of quantitative easing. Under quantitative easing, central banks create money and use it to buy up assets and securities such as government bonds. This money enters into the banking system as it is received as payment for the assets purchased by the central bank. The banks' reserves swell up by that amount, which encourages banks to give out more loans, it further helps to lower long-term interest rates and encourage investment.
After the financial crisis of 2007–2008, the Bank of England and the Federal Reserve launched quantitative easing programs. More recently, the European Central Bank and the Bank of Japan have also announced plans for quantitative easing.
Consequently, dear Dariusz Prokopowicz , anexpansionary monetary policy decreases unemployment as a higher money supply and attractive interest rates stimulate business activities and expansion of the job market.
Monetary policy can be effective in times of widespread unemployment of all kinds throughout the economy, i.e. when aggregate demand is deficient.
However, it is just not true that all unemployment is in this manner due to an insufficiency of aggregate demand and can be lastingly cured by increased demand. The causal connection between income and employment is not a simple one-way connection so that by raising income by a certain ratio we can always raise employment by the same ratio; but, in any case, of a system in a state of general unemployment it is roughly true that employment will fluctuate in proportion with money income, and that if we succeed in increasing money income we shall also in the same proportion increase employment.
____________
https://www.core-econ.org/the-economy/v1/book/text/15.html
https://www.core-econ.org/
——
“Unemployment or the loss of income which will always affect some in any society is certainly less degrading if it is the result of misfortune and not deliberately imposed by authority.”
― F.A. Hayek
The central bank addresses high unemployment while maintaining the value of money by using expansionary monetary policies like lowering interest rates and quantitative easing, ensuring inflation remains within target ranges, providing forward guidance, acting as a lender of last resort during financial crises, and implementing macroprudential policies to mitigate systemic risks.
Central banks face a tough choice when unemployment is high. Here's the gist:
- Taming inflation (protecting money value): They raise interest rates to slow the economy, which can help keep prices stable. But this can slow job growth.
- Boosting the economy (fighting crisis): They lower rates to encourage borrowing and investment, which can create jobs. But this can also lead to inflation.
They use various tools to try to achieve both goals during a crisis.
It's a balancing act for central banks during high unemployment. Here's the deal:
- Stable prices (money value): They raise interest rates to slow the economy, preventing prices from going up too fast. This can slow job creation.
- Economic growth (crisis): They lower rates to boost the economy, making borrowing cheaper and encouraging investment. This can create jobs.
They use different tools to try and achieve both goals at once.
- Badges
- Science topic
- Similar topics
- Medicine
- Disease
- Infectious Diseases
- Immunization
- Vaccination