Monetary PolicyLocked: included in All Access

What central banks do and why price stability is their overarching goal, the three tools they use (open market operations, the policy rate and reserve requirements), how a rate change travels through the economy, what makes a central bank effective, how inflation targeting and exchange rate targeting compare, when policy is expansionary or contractionary, where monetary policy runs out of power, and how it interacts with fiscal policy.

1. 1. What central banks do and what they aim forA central bank issues the country's fiat money and stands behind the banking system, and almost every central bank names one overarching objective for all that work: price stability.Locked: included in All Access12 min
2. 2. The three tools: open market operations, policy rate, reserve requirementsCentral banks change the amount of money and credit by buying or selling bonds, by setting the rate at which they lend to banks, and (less often today) by changing how much of their deposits banks must hold as reserves.Locked: included in All Access14 min
3. 3. How a rate change reaches growth, inflation and the currencyA change in the policy rate spreads through four linked channels (market interest rates, asset prices, expectations and the exchange rate) to total demand and import prices, and so to inflation.Locked: included in All Access13 min
4. 4. Effective central banks and inflation targetingAn effective central bank is independent, credible and transparent; inflation targeting builds on those three qualities by promising a clear, forward-looking inflation goal, usually about 2%.Locked: included in All Access14 min
5. 5. Exchange rate targeting and policy in developing economiesMany developing economies peg their currency to a low-inflation currency to 'import' its inflation record, but then domestic interest rates and money supply must bend to defend the peg, and a peg that is not credible invites speculative attack.Locked: included in All Access12 min
6. 6. Expansionary or contractionary? The neutral rate and the source of shocksPolicy is contractionary when the policy rate is above the neutral rate (trend real growth plus expected inflation) and expansionary when below it, but before acting the central bank must ask whether rising inflation comes from demand or from supply.Locked: included in All Access12 min
7. 7. Limits of monetary policy: weak transmission, deflation and quantitative easingMonetary policy can fail when long rates or banks do not respond as intended, and above all in deflation, where rates cannot go much below zero; quantitative easing is the large-scale asset-buying response, with no guarantee of success.Locked: included in All Access15 min
8. 8. How monetary and fiscal policy interactMonetary and fiscal policy both move aggregate demand but through different channels, so the mix decides interest rates and the split between public and private sectors, and each policy's power depends on the other.Locked: included in All Access13 min