Monetary Policy - Coursework Example

Conversely, the excessively low level of money circulating in the economy kills economic performance and induces deflation. Since the association between the money supply and other economic indicators such as the gross domestic product and prices level or inflation has become irregular, the money growth-based policies have been unsuccessful (What is money supply? Is it important? 2014).

Why don’t policymakers want to adopt rules for monetary policy?

            Adopting rules for the monetary policy is like suggesting that the economy regulators clearly understand all the variables within the economy and how they affect one another. The centre stage for the formulations of rules for monetary policy is the interest rates and the economic output. It is currently clear that the performance of an economy is influenced by the performance of other institutions like the financial market, the capital market, and financial institutions. These players add to the list of factors to be considered when formulating rules for monetary policy. The regulators have not been able to understand fully how the financial markets affect the economy, thus, controlling an unclear situation could cause damages. Therefore, policymakers are reluctant to adopt rules for monetary policy (Swanson, 2014).