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Journal: International Journal of Advanced Research (Vol.10, No. 05)

Publication Date:

Authors : ;

Page : 612-617

Keywords : Monetary Policy Instruments of Monetary Policy Exchange Rates Interest Rates;

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Monetary policy is conducted through transmission channels which are by definition channels through which monetary variables influence real economic variables, notably the liquidity effect, which is shown by the repercussions of a change in the money supply on global demand, and the interest rate effect, which has an impact on the cost of capital, thus affecting the spending behaviour of agents through income effects and their choice of assets through substitution effects. To the extent that price and exchange rate expectations modulate the economic and financial behaviour of agents, monetary policy also tries to influence these variables via announcement effects. The effectiveness of these effects remains conditioned by the credibility of monetary policy and the confidence of agents in this policy. This paper attempts to explain the objectives of monetary policy and their paradoxical management. The main internal objective of monetary policy is the fight against inflation through demand and inflation through income. Subsequently, the external objective of exchange rate stability. Monetary policy may, therefore, be faced with a dilemma, in that the emergence of conflicts between internal and external objectives calls for contradictory and transitional measures.

Last modified: 2022-06-17 16:13:04