Effect of Inflation in the Economy
Price (P) ↓ = Deflation ⇒ Expected Loss ↑ ⇒ Investment ↓, Employment ↓, Income ↓, AD ↓, Investment ↓ < Recession ⇒ Ultimately depression Price (P) ↑ = Inflation ⇒ Expected Profit ↑ ⇒…
Types of Inflation Based on the Causes
In the previous note, we discussed the different approaches to inflation. Now we explain the types of inflation based on the causes. Basically, there are three types of inflation. Demand Side or Demand Pull Inflation…
Inflation – Concept, Different Approaches and Its Types
Inflation is defined as a continuous and substantial rise in the general price level. It is a situation in which the value of money or purchasing power is continuously declining, increasing the cost of living…
Why Fiscal and Monetary Policy Coordination is Important?
To avoid the conflict between the goals/targets of the fiscal and monetary policy. To develop private-sector confidence and boost investment in the economy. To maintain price stability and external sector stability. To promote growth and…
Effectiveness and Limitations of Monetary Policy in Nepal
The effectiveness of the monetary policy should be assessed in terms of the achievement of its policy goals and targets. In the case of Nepal, the monetary policy and its effectiveness are found to be…
Alternative Framework of Monetary Policy
The global financial crisis of 2007/08 made a policymaker to rethink the traditional monetary policy instruments, where the interest rate is fully deregulated, and the provision of reserve requirement such as CRR and SLR, which…
Monetary Policy in Nepal – Objectives and Transmission Channels
Monetary policy is the macro policy formulated by the central bank to achieve pre-defined objectives primarily through the regulation of money supply and credit supply. So, monetary policy consists of the objectives or goals, targets,…
Term Structure Theory of Interest Rates
The terms structure theory shows the relationship between the terms to maturity period of the bond and its yields or interest rate. It means the maturity period of the bond is different, and depending on…
Relevancy of Taylor’s Rule in Interest Rate Determination
It was proposed by economist John B. Taylor in 1993. Taylor’s Rule is a monetary policy guideline that suggests how a central bank should set the nominal interest rate based on economic conditions—especially inflation and…