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Monetary in sentence

5081 examples of Monetary in a sentence

The Inflation PuzzleCAMBRIDGE – The low rate of inflation in the United States is a puzzle, especially to economists who focus on the relationship between inflation and changes in the monetary base.
After all, in the past, increases and decreases in the growth rate of the monetary base (currency in circulation plus commercial banks’ reserves held at the central bank) produced – or at least were accompanied by – rises and falls in the inflation rate.
And, because the monetary base is controlled directly by the central bank, and is not created by commercial banks, many believe that it is the best measure of the impact of monetary policy.
For example, the US monetary base rose at an annual rate of 9% from 1985 to 1995, and then slowed to 6% in the next decade.
This decelerating monetary growth was accompanied by a slowdown in the pace of inflation.
But then the link between the monetary base and the rate of inflation was severed.
From 2005 to 2015, the monetary base soared at an annual rate of 17.8%, whereas the CPI increased at an annual rate of just 1.9%.
To explain this abrupt and radical change requires examining more closely the relationship between the monetary base and inflation, and understanding the changing role of the reserves that commercial banks hold at the Federal Reserve.
Its main responsibility, after all, is to set monetary policy, which involves a small number of very important decisions, usually made on a pre-set timetable.
Indeed, given that monetary policy works by influencing market expectations, maximizing such decisions predictability – at least in terms of timing and guiding principles – enhances their effectiveness.
Potential obstacles abound: more aggressive monetary tightening, especially in the United States; a further escalation of protectionism; a harder-than-expected economic landing in China; and a return of tensions in the eurozone, triggered by concerns over the fate of Italian finances.
Such an irresponsible game of chicken between America’s fiscal and monetary authorities heightens the risk of instability for the rest of the world, given global sensitivity to the US interest-rate cycle.
If such monetary arrangements are transparent and cooperatively drawn, they could occur smoothly and without financial turmoil.
The move, which has come to be known as the “Draghi put,” almost immediately reduced borrowing costs for Spain and Italy, and is widely touted as having pulled the eurozone back from the brink of disaster – without ever using the so-called “outright monetary transactions.”
That may sound like a resounding success: the mere announcement of the OMT scheme was enough to end the monetary union’s existential crisis.
What is worse, the argument goes, the expectation of monetary financing would drive governments to borrow excessively.
If, however, the crisis results from a coordination failure among investors – when each investor refuses to roll over the government’s debt for fear that others will do the same, leading to a default – monetary policy can play an important role.
Moreover, as the OMT announcement demonstrated, a credible promise to use monetary financing in the event of such a crisis can prevent it from arising in the first place – with no inflationary action required.
Refusing to consider any amount of monetary financing, and continuing to adhere to a strict inflation target, would have been much more difficult to justify.
Opponents of central-bank intervention are right about one thing: monetary financing carries serious risks.
Indeed, the economist Robert Mundell, whose work on optimal monetary zones is credited with laying the theoretical groundwork for the euro, insists that China should maintain its fixed exchange rate as a necessary part of its current phase of economic development.
On the contrary, if Trump follows through on his campaign promises, the greenback could eventually be toppled from the peak of the global monetary hierarchy, as a widening range of alternatives emerge to pull it down.
Taxpayer-funded bank rescues, higher bank capital requirements, and ultra-easy monetary policy have all been vital to overcome credit supply constraints.
Aggressive monetary expansion through quantitative easing is also far more complicated and politically contentious in a currency area with no federal debt for the central bank to buy.
Indeed, as Reserve Bank of India Governor Raghuram Rajan has pointed out, after years of effort, the benefits of unconventional monetary policy are diminishing, while the costs are increasing.
Beyond the domestic sphere, unconventional monetary policies have had far-reaching spillover effects.
The emerging economies’ monetary authorities have struggled to cope with these shocks using available instruments, including interest rates, exchange rates, prudential regulation, and capital controls.
Because advanced economies’ unconventional monetary policies have also depreciated their currencies and stimulated their exports, the risk of competitive devaluations is now a real concern.
Instead of viewing all of this as motivation to back away from unconventional monetary policy, however, some economists are recommending that the ECB and the BOJ pursue an even more extraordinary policy: so-called “helicopter drops.”
As Former Fed Chairman Ben Bernanke points out, monetary finance is essentially equivalent to a broad-based tax cut, with the central bank committing to purchase government debt.
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