Monetary Aggregate Targeting vs. Inflation Targeting: the Case of the Philippines

Monetary Policy is the procedure by which the financial expert of a nation, similar to the national bank or cash board, controls the supply of money. Regularly focusing on a inflation rate or interest rate to guarantee value solidness and general trust in

It widely recognized that the monetary policy within a country should be primarily concerned with the pursuit of price stability. However, it is still not clear how this objective can be achieved most effectively. This debate remains unsettled, but an increasing number of countries have adopted inflation targeting as their monetary policy framework. (Dr E J van der Merwe, 2002) This topic of Inflation targeting is a subject which immediately conjures different perceptions from different people. Many feel that low inflation should be a main aim of monetary policy, while others (such as trade union activists) believe that a higher growth rate to stimulate jobs should be the main concern.

Targeting interest rates that can directly control inflation. The monetary policy is one that quickly comes into play. Central banks are independent of the government and refrain from political influence. They can boost exports by merely weakening the currency. The benefits of the fiscal policy consist of direct spending to specific purposes, by using taxation they can discourage negative externalities, and have a shorter time lag. The potential costs of the policies can create budget deficits, having to spend tax incentives on imports, and may be motivated by politics.The use of the monetary policy runs the risk of hyperinflation, the time it takes for the effects to materialize, the technical limitations and the fact that financial tools affect the entire

How does the central bank manage the nation’s monetary system? What is the monetary system? Monetary system is the nation’s money supply. The Federal Reserve is the United States’ central bank. Its roles consist of controlling the money supply. It also “clears interbank payments, regulates the banking system, assists banks in difficult financial positions. The Fed also manages exchange rates and foreign exchange reserves.” (Case, Fair, & Oster, 2011)

This policy has numerous advantages and disadvantages for various stakeholders in both the long and short run. Reducing inflation will allow for the retainment in the peso’s local value and greater price stability in the long run. Thus, consumers and businesses can take more time in making spending decisions and not risk having their money depreciated. The price stability will also allow for the reduction in menu costs for businesses, potentially increasing long term customers and especially those on fixed incomes and

monetary aggregates, whose main policy tool was an interest rate. The switch from pro-cyclical to anti-cyclical monetary

Monetary policy, ‘The government’s policy relating to the money supply, bank interest rates, and borrowing’ (Collin: 130), is another tool available to the government to control inflation. Figure 4 shows, that by increasing the interest rate (r), from r1 to r2, the supply of money (ms) is reduced from Q1

Monetary planning was strictly constrained by heavily regulated rule consisting of priority sector lending, administered interest rates,refinance to the banks at concessional rates to enable them to lend at cheaper rates topriority sectors, high level of deficit financing, external oil price shocks, etc. In September 1964

Inflation rate is the degree of which the currency is loses its value. So central bank tries to control this devaluation of currency and protect the purchasing power of the people. So fulfill these objectives central bank makes fiscal policy and monetary policy. With these policies central bank implements the taxes which comes as revenue and also how they spent it to the welfare of people. So they have the certain control on the money supply and demand as well. In this paper we will see how the independence of central bank regarding the monetary and fiscal policy leads to control the inflation rate better. In the central bank is independent in the decision making of making these policies that will lead to have a good control of inflation rate.

This essay seeks to explain what are monetary and fiscal policy and their roles and contribution to the economy. This includes the role of the government in regulating the economical performance of a country. It also explains the different features and tools of monetary and fiscal policy and their performance when applied to the third world countries with a huge informal sector.

The developing countries of East Asia including the Philippines confronts new external standards with slower growth in developed countries, tighter monetary conditions, increasing concerns about developed countries’ debt. Consequently, this leads to an extremely difficult situation for growth. In the near term, careful management of the fiscal stimulus measures is necessary; while, the country restores their structural reform program in the future.

The monetary base consists of central bank liabilities, so that central bank intervention on M0 generates a multiplied effect on M2. Hence, the money multiplier shows the relation of the monetary base and the MS (M2). Advantageously, the theory holds that central banks intervene through controlling the quantity of reserves that multiply up to a greater change in bank loans and deposits so that money growth is consistent with its objectives of stable inflation. By doing so, central banks bring about a desired short-term interest rate. Central banks take policy action through controlling reserve quantities. Central banks, however, actually set the cost of borrowing, not the quantity, as there is no other way for the system to be controlled

Inflation is blazing subject that delays the economic development of the country. It is becoming extra hectic to economists, politicians and even people also. Factors on both demand and supply effect the inflation. So the stabilization strategies ought to consequently focus on both demand manipulation as well as

The Central Bank is the utmost authority that is employed by the government to formulate monetary policy to guide the economy of a country. Monetary policy is defined as the regulation of the money supply and interest rates by a central bank. Monetary policy also refers to how the central bank use the interest rates and the money supply to guide economic growth and control inflation and stabilizing currency. Central bank is one kind of bank that operates in the financial system. Bank is a financial institution that provides service that is related to money. It works as a financial intermediary. The banking system of a country is highly regulated by the government. The government changes its level of control over the banks over the time to meet the need of the ever changing world. Bank operates in the service industry in which relationship with customers is very important. Bank is considered as an iron cell of a body. A financial system cannot work without the existence of the bank. The main earning of a bank is interest. Bank gives lower interest on deposit and take high interest rate on loan. This is how bank make money. Bank is mainly of three kinds.1) retail banks 2) investment bank 3) central bank. Central bank is highest financial institution of a country. It controls money market, currency system of the country. Central bank also regulates the

Current price of crude oil has increased to USD 150 per barrel which causes Malaysia to face 7.7% inflation in June 2008 and a 8.5% inflation in July 2008. The price of local gas has increased from RM1.92 per liter to RM2.70 per liter due to the rise of the natural resources. The increased in the price of local gas has caused the price local goods such as cooking oil to rise in that year. The local traders took the advantage to increase the price of goods due to the rise in crude oil price. The value of ringgit has turn down and lowering its value because of the local traders act. By increase the price of good, the value that previously can buy good in certain quantity, has goes down that only by the same good but in the less quantity than before.