Macro Economic Targeting
Transcript of Macro Economic Targeting
MACROECONOMIC TARGETING
Presented byAmit Kumar Morya Roll No. 49 MBA-IB 2006-2008
Structure of the presentation Overview Demand for money Transmission Mechanism Monetary Control Instruments Issues in Monetary Policy Monetary Policy in India Objective Monetary Control in India Exchange Rate Objective Exchange Rates in India Monetary Policy and Fiscal
Policy
Interaction between MP and FP Indian Case
Demand for Money
Transmission Mechanism
Financial Variables-Interest Rate
Financial VariablesExchange Rate
Financial Variables-Asset Values
Monetary Control Instruments
Open Market Operations
Issues in Monetary Policy
Monetary Policy In India
Monetary Control in IndiaOpen Market Operations
Helped in regulating the flow of bank credit to the private sector.
Monetary Control in IndiaOpen Market Operations
Source: RBI, Annual Report 2005-06
Monetary Control in IndiaBank Rate and Discretionary Control of Refinance
Source: RBI, Annual Report 2005-06
Monetary Control in IndiaCash Reserve Ratio
Monetary Control in IndiaStatuary Liquidity Ratio
Monetary Control in IndiaStatuary Liquidity Ratio
Source: RBI, Annual Report 2005-06
Monetary Control in IndiaLiquidity Adjustment Facility
Monetary Control in IndiaLiquidity Adjustment FacilityInterest Rate Corridor
Call money rate and other money market rates respond to both high and low repo rates
Monetary Control in IndiaLiquidity Adjustment Facility
Source: RBI, Annual Report 2005-06
Exchange Rate
Exchange RateRomer (1999)
Exchange Rates in India
Exchange Rates in IndiaForeign Exchange Reserve
Source: RBI, Annual Report 2005-06
Rupee under upward pressure
Exchange Rates in IndiaThree options before RBI
Exchange Rates in IndiaRBI's Purchase and Sale of Dollars60 50 40 US $(Billion) 30 20 10 0 1996- 1997- 1998- 1999- 2000- 2001- 2002- 200397 98 99 00 01 02 03 04 YearExchange Rate(RS/$)aa 60 50 40 30 20 10 019 93 19 -9 4 94 19 -95 95 19 -9 6 96 19 -9 7 97 19 -9 8 98 19 -9 9 99 20 -00 00 20 -0 1 01 20 -02 02 20 -0 3 03 -0 4
RBI's Purchase of US $(billion) RBI's Sale of US $(billion)
Source: Macroeconomic Policy Environment, An Analytical Guide for ManagersMovements in Exchange Rate7 Coefficient of Variationiii 6 5 4 3 2 1 0
Average Exchange Rate Coefficient of Variation
Interaction between Monetary and Fiscal in the Policy 1. To determine O/P and Interest rateshort run IS-LM Curve
IS-MP Curve (Romer 2000)
Interaction between Monetary on different sectors and Fiscal Policy 2. Uneven effect
3. Functioning of Government expenditure
Monetary and Fiscal Policy - Indian Case
Monetary and Fiscal Policy - Indian Case: After Reform
Need to be target
Thank YouReferences
Shyamal Roy, 2005. Chapter 5: Monetary Policy. Macroeconomic Policy Environment, An Analytical Guide for Managers. Shyamal Roy, 2005. Chapter 6: The External Sector. Macroeconomic Policy Environment, An Analytical Guide for Managers. Rakesh Mohan, 2005. Financial Sector Reforms and Monetary Policy: The Indian Experience Raghbendra Jha, Dec 2005. Inflation Targeting in India: Issues and Prospects. CAMA Working Paper Series. Ashima Goyal. Coordinating Monetary and Fiscal Policies, India Development Report, 2002. LM Bhole, 2004. Chapter 6: Reserve Bank of India, Financial Intuitions and Markets. Major Monetary Policy Measures- Bank Rate, CRR, and SLR. Available at: http://ww.rbi.org.in Fiscal Situation 2006-07. Available at: http://ww.rbi.org.in Himanshu Joshi, The Interbank Money Market in India: Evidence on Volatility, Efficacy of Regulatory Initiatives and Implications for Interest Rate Targeting Trends in Banking 2005-2006, RBI Report. Available at: http://ww.rbi.org.in K Seethapathi and Arindam Banerjee, Interest Rates in India: What Lies Ahead? Treasury Management, IFCAI Press 2006.
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