monetary accommodation


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Cheap Money

A monetary policy in which a central bank sets low interest rates so that credit is easily attainable. This makes borrowing easy for business, which stimulates investment and expansion of operations. The immediate result of cheap money is a boost in stock prices; in the medium term, cheap money promotes economic growth. However, if cheap money remains in the economy for too long, it can lead to a situation in which there is a glut of currency or too many dollars chasing too few goods and services leading to inflation. For this reason, most central banks alternate between policies of cheap money and tight money in varying degrees to encourage growth while keeping inflation under control.

monetary accommodation

the use of MONETARY POLICY to ‘accommodate’ sudden supply-side changes in the economy, for example, an increase in nominal money supply to offset the deflationary impact of an oil price or other major cost increase. In the absence of monetary accommodation, the COST-PUSH INFLATION associated with an increase in oil prices would act to reduce the real money supply, increase interest rates and cause AGGREGATE DEMAND to fall. To avoid such recessionary tendencies, the authorities need to increase the rate of monetary growth to restore lost purchasing power.
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In the Clinton administration, there was an ideal fiscal-monetary policy mix of increased fiscal discipline and general monetary accommodation, which provided the low-interest rate backdrop for a record-long economic expansion.
Although investors seem to exhibit only modest concern over a reemergence of stronger inflation during the next few years, they apparently fear a resurgence further in the future, to a large extent as a consequence of expected outsized budget deficits exerting pressure for monetary accommodation.
Alongside this, several of the central banks of Israels major trading partners, adopted unusual monetary accommodation, including low and even negative interest rates and quantitative easing, reflected in the fact that some of the governments debt is traded at negative yields.
Jung Won Suk, head of the fixed-income division at LS Asset Management in Seoul, said, 'Expectations for monetary accommodation from ECB supported global bonds, but I doubt the rally can continue further in Korea.
He has grown increasingly vocal for change given how hard the currencies and stocks of emerging economies such as India have been rocked by big shifts in capital flows brought on by the unprecedented monetary accommodation in rich nations.
The minutes said, "Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.
Last September was not much kinder to the global economy, bringing an intensification of the crisis that prompted the Fed to begin its "Operation Twist" program of monetary accommodation.
A very substantial degree of monetary accommodation is still needed to secure a sustained return of inflation rates towards levels below, but close to, 2% in line with the ECBs mandate.
In this week's monetary policy meeting, analysts expect the ECB to enter a dramatic new phase of monetary accommodation.
Prolonged and aggressive monetary accommodation has side effects that may delay the return to a self-sustaining recovery and may create risks for financial and price stability globally.
And, importantly, inflation dynamics continue to be conditional on the present, very substantial degree of monetary accommodation.
Indeed, he wants to add to the Fed's monetary accommodation by promising to keep rates near zero until unemployment reaches a healthy 5.