Nominal Anchor for Monetary Policy |
A nominal anchor for monetary policy is a single variable or device which the central bank uses to pin down expectations of private agents about the nominal price level or its path or about what the Bank might do with respect to achieving that path (Krugman, 2003). Generally, the two kinds of nominal anchor; quantity-based nominal anchor and price-based nominal anchor. The quantity based nominal anchor targets money while the price-based nominal anchor targets exchange rate or interest rate.
In the past the CBN uses broad money supply (M2) as the nominal anchor for monetary policy. It is important to note that exchange rate targeting may not produce the desired effect if the interest rate is also subject to control at the same time. Some rules are necessary for effective monetary policy. In this case, prices such as exchange rate and interest rate may not be controlled or pegged at the same time. If interest rate is controlled, the exchange rate should be allowed to move freely for the necessary adjustment to materialise so that price stability could be attained.
Enjoy this article? Feel free to share your comment, idea or opinion in the comment section
Related Articles
Strategic Life PlanningStrategic planning is without doubt one of the main factors responsible for the continued success of an organisation and often distinguishes organizations that succeed from those that don't especially in the long term. Strategic planning, as an integral aspect of strategic management, enables or [Read more]
|
Posted: 6 years ago | |
Career Transitioning - A GuideWe are living in a very transient world where things are constantly changing and shifting. Many years ago, petroleum engineering was one of the most lucrative professions to jump into. With the oil boom days now over, with so much talk about climate change and the need to move from fossil fuels to a [Read more]
|
Posted: 2 years ago | |
Gain Report - Nigeria: rice trade quarterlyReport Highlights: The Government of Nigeria (GON) has resolved to encourage domestic rice production by restricting rice imports to conserve foreign exchange. Rice importers now import rice from India following the recent reentry of that country into the non-basmati rice trade.
Post:
Lagos
[Read more]
|
Posted: 13 years ago |