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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Commitment strategies whereby monetary accommodation is not removed until either inflation or economic activity overshoots its longrun objective are very effective in both the DSGE and FRB/US models.
Instead, the lower bound on interest rates and constraints on the adoption of unconventional measures prevented sufficient monetary accommodation since the financial crisis in most advanced economies.
"There's a lot of monetary accommodation, less fiscal drag; most countries are enjoying reduction in oil prices.
"The Reserve Bank will look to a continuation and even acceleration of policy efforts to unclog the supply response so as to make available key inputs such as power and land." He said the progress on repurposing of public spending from poorly targeted subsidies towards public investment and on reducing the pipeline of stalled investment would also be helpful in containing supply constraints and creating room for monetary accommodation.
The WEO study notes that economies with clearly identified infrastructure needs and efficient public investment processes, and where there is economic slack and monetary accommodation, stand to benefit from higher public infrastructure investment.
First, it should admit that it still does not know how to exit the extreme monetary accommodation required to avoid a financial and economic collapse after a crisis like the one that hit the US financial market in September 2008.
Federal Reserve will deviate from its course of removing monetary accommodation from a strengthening economy.
"A high degree of monetary accommodation remains warranted,'' Chair Janet Yellen said Wednesday in testimony prepared for delivery to the Joint Economic Committee of Congress.
The report warned that policy-makers must "avoid a premature withdrawal of monetary accommodation" - supporting Mr Carney's caution about any immediate increase in interest rates.
"We are resolute in our determination to maintain a high degree of monetary accommodation and act swiftly if required."
He said that the institution remains "firmly determined" to maintain a high degree of monetary accommodation and to take "further decisive action" if required.
However, improvements in the major economies have required exceptional monetary accommodation and there remains uncertainty about the timing of withdrawal of this stimulus and its effects, especially on emerging market economies.