Monetary Policy and Global Economy

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ECONOMICS

Global economy
Task – 1
One of the most important aspects for an organization or a company is to declare a monetary
policy that can affect the micro and Macro Economic terms that are being introduced by the
central bank. The major functions of these policies are to help and control the management
functions of the money supply and also the interest rates that can help to control the demand
and supply in a particular type of economy. The monetary policy can also be understood as
the policies that can be helpful to manage any investments are expenses that can affect the
economic condition of a country (Braeutigam, 2010). If the monetary policy is used in a
proper manner then it can be used in a country to reduce inflation and unemployment. There
are different types of targets of monetary policy that are used in the case of the US economy.
For example, it can also be stated that the unemployment rate will be aimed below 6.5 % and
also at the same time the country will focus on increasing the GDP with the 2 to 3 % every
year (Acemoglu & Robinson, 2012).
Generally, there are two types of monetary policies using which a country uses to make the
supply. The two types of monetary policies are contractionary and expansionary policies. In
the case of contractionary policy, the inflation rate can be defined as the old loaded economic
environment that is being observed by the country in that particular time span (Acemoglu &
Robinson, 2012). Contractionary policies also sometimes known as a tight monetary policy,
on the other hand, the expansionary policy tries to reduce the interest so that the economic
growth can be achieved. These policies are also very useful to maintain the economic status
of a country in the recession periods (Braeutigam, 2010). There have been times when the US
Federal Reserve has used many of its economic tools in the open market operations so that it
can improve its economic status. One of the most important situations is of buying treasury
notes from member banks for the fulfillment of credit creation policies.
In the present market conditions and the Global economic environment, it has been observed
that many Central banks are trying to use tools that can help to maintain the economic status
of a country with the help of tight monetary policies. Also been observed that the US
economy is functioning in a similar manner in which the interest rate is considered and
targeted to maintain the economic status. Federal Reserve is also said to use the core inflation
rate in order to maintain the inflation that is present in the variable food and oil prices. With
the increase in interest rates, the loans are also becoming expensive because of which the
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Global economy
citizens are not happy with the money-saving policy (Pennings, Ramayandi & Hsiao, 2015).
These situations may also lead the country to face recession periods.
The monetary transmission models also depend on the mechanism of the monetary
transmission mechanism in which the prices of Assets and existing economic conditions are
taken into consideration when the decisions are taken (Pennings, Ramayandi & Hsiao, 2015).
Hence, it is very important to judge all the basic figures before making an influenced
decision. This model not only affects the overall demand and monetary policy but also the
interest rates and the credit view channels because of which the investment and consumer
spending patterns also differ. It can also be understood with an example of the countries that
are trying to borrow a huge amount of money on the risk of high capital outflow considering
that the dollar-dominated dates and markets will be in their favor. These transitions and
aftershocks must be handled with perfect policy instrument so that the country can be safe
from any harm during the times of recession. It was observed in the year 2016 that the report
of UN on the economic situation clearly stated that the increasing price of the commodity
will not only help to boost the international trade but also will improve the recovery rate.
There were also some external and domestic shocks because of which structural weak points
were observed in the international policies.
GDP Growth in Emerging Economies
The change in the commodity price has affected the large exporters like Brazil, Russia and
Arab while the emerging economy is like China are trying to boost their asset price and debt
concerns. This period was used by the US in order to improve the economic value of its
market and also improvise the monetary policies. Also, focus was created on the absorption
of extra capital in the open market so that the developed countries can use it to improvise the
aggregate demand and strong financial structures can be created by facing the challenges of
high debts. Hence it is very challenging for the emerging economy is to handle the transition
mechanism because of the general conditions that are observed in the global liquidity rate
which are being faced by the emerging economy (Pelanda, 2018). Also, the emerging
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Global economy
economy is said to face hay capital inflow because of which the risk of financial crisis retains
upon them.
Flow of Capital in emerging economies
The slow growth rate of many of the emerging economy is having already started to lower the
global trade version of the country in relation to the political concerns. the poor portfolio is
not only visible in the emerging countries but also the state policies are also gaining the
stability because of which the pressure of increasing inflation may lead the federal reserve to
make changes in the interest rate.
Portfolio capital inflow in emerging economies
The cheap fund and high corporate debt concerns outside the United States have not only
increased the contribution in GDP from 61 % to 100% in the year 2016 but also in the same
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