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.
About the Author - Central Bank Of Nigeria (CBN) - Education Series
The series seeks to educate stakeholders and the general public on monetary policy issues such as: what is monetary policy, how it is conducted, What it can do and not do and how the monetary policy actions of the Central Bank of Nigeria affects Nigerians, the economy and the outside world.
Report Highlights: Total food and agricultural imports are estimated to reach $4.0 billion by end of 2011 from about $3.7 billion in 2010. Wheat from the U.S. accounts for more than 20% of Nigeria's total food and agricultural total imports. Exports of other U.S. agricultural products such as [Read more]
The general definition of the term WORD is to say something, name, express, command, order or instruct. ACTIONS simply put is how we act, react, operate or the effort we put in to do something. REINFORCEMENT could be summarised as what helps to build up or increase anything.
How d [Read more]
In Nigeria, the major objectives of policy are the attainment of price stability and sustainable economic growth.
Associated objectives are those full employment and stable long-term interest rates and real exchange rates. In pursuing these objectives, the CBN recognises the existence of conf [Read more]