Implication and Meaning of the Monetary Policy - Research Paper Example

RESEARCH U.S. Chides Europe, Japan for Overreliance on Monetary Policy Retrieved from http www.wsj.com/articles/u-s-chides-europe-japan-for-overreliance-on-monetary-policy-1428611406: wall street journal Article review and analysis “US chides Europe and Japan over the continuous use of monetary policy." The United States of America and its government officials under the Obama administration has chided or mocked the continued use of monetary policy by the Asian and European countries to try to resolve their economic situations and difficulties. It stems from the fact that the Asians countries such as Japan have continued to apply temporal economic remedies to situations that require strict and decisive economic approaches and action. It is important to note and mention that some of these countries such as Japan have continued to witness stagnant growth in the economies. however, they have been reluctant and unwilling to pursue realistic and combative economic policies to correct their economies and allow it to grow to double digits. The continued use of monetary policy means that the economy get revived or rejuvenated in the short run when the market forces stabilize at that particular point. After some time, the cycle goes back to the initial position before the financial or monetary bailout by the central bank. Another example of a European country that has continued to use monetary policy to a sad state of affairs was Greece (Arestis & Sawyer, 2006, p. 849). It is common knowledge and information that in the recent past Greece suffered massive budget deficit and losses to the extent that it required the efforts of the European Union to bail it out. As a way out or a potential remedy, the United States of America has advised the European nations and Asia Specifically Japan to explore other prospective and potential avenues of correcting their economy. In their advice, chide or mockery, the United States of America has advised that they enforce and use other useful economic tools to correct the situation aptly. Other economic policies include the fiscal approach or pursuing the trends and views taken by the ancient classical economic thinkers. Specifically, it calls for the European nations and Japan to allow the free forces of the markets of demand and supply to clear or get the economy to its equilibrium. The United States of America in its part uses the laws of the market where it allows the economy to operate with minimal interference and control from the government or the central bank. If the Japanese government and the concerned or affected European countries could embrace a free economy, then their economic equilibrium would explain with ease without any external undue pressure from the government or the central bank. It is to say that the buyers and sellers in a perfect competitive market accept the price set by the market determinant (Mankiw & Hakes, 2009, p. 66). In principle, the monetary policies are usually taken by the central bank so as to allow the economy to achieve full employment or curb against inflation. However, the perspective and approach taken by monetary policy is short terms since it only cures or corrects the demand or supply of money at a particular point in time. However, if there is any other aspect or issue that can increase or aid the growth of the economy, Europe and Japan have not pursued such options. Implication and meaning of the monetary policy To begin with, the term monetary policy refers to the moves and measures taken by the currency board, the central bank or any other regulatory authority of a country to determine the rate or quantity of money supply to the economy (Mankiw & Hakes, 2009, p. 551). In conventional knowledge and wisdom, it becomes difficult or impractical for a country to limit the supply of money in circulation and instead introduce measures to restrict such a circulation. For instance, the central bank the regulatory authority or the currency board could advise and effect an increase in the interests rates for the banks and the microcredit financial institutions. The banks and the microcredit or microfinance institution would then in turn pass the high-interest rates or the rates of borrowing to the customer. As a result, there would be an overall reduction in the number of people who would ask for loans or credit from the banks. It would be so because the interest rates and rates of borrowing would be so high to be serviced by the customers. It is important to note and mention that the increased interest rates would be a polite way of discouraging people from borrowing money. Similarly, the central bank, the regulatory authority or the currency board could increase the amount of money that the commercial banks are needed or required to keep in their safes or vaults. Usually, it is in the percentage form and the federal policy may vary the interest rates accordingly (Mankiw & Hakes, 2009, p. 553). Thus, the central banks, the regulatory authority or the currency board could increase the percentage required by the commercial banks and the microcredit and finance institutions required to keep in their safes. For instance, it could be increased or raised to thirty percent depending on the economic reality and situation at that point in time. If, for instance, the bank ratio requirement or reserve is high, it means that the more money would be kept in the safes and bank reserves and would not be in circulation. Accordingly, the critics of this approach and instance or approach have faulted it because it limits the amount of money that may be used to grow the economy amongst other cases or issues. Biblical implication and relevance of the concept The Bible is the key foundation and basis for the guidance on how Christian should live with one another and the world at large. It stipulates the set of laws and principles or policies that a Christian should follow and adhere to at all times in the life of a Christian. As far as the issue of the monetary policy pursuant to raising the interest rates for the banks and the customers by extension implies that the needy would be discouraged from borrowing (Blomberg, 2000). The Bible mentions that a person should never hinder a brother who is need from borrowing let alone increase the rates of the debt. At the very minimum, the Bible discourages people from expecting anything especially of they share what they have with other in return (Bible, English. New Living Translation 1996). It is so because the Father in heaven would repay every kindness that a person shows to a needy person. It is my guided view and respectful submission that the Bible disallows any attempts to increase the interest rates charged by a lender or a person borrowing. According to the Bible, the attempt to limit or discourage borrowing for whichever reason is wrong since the Father in heaven-God is the owner of all gold and silver and human beings are just managers (Bible English. New Living Translation 1996). Thus, if the owner is willing to give for free, why should a trust holder or a keeper have difficulty in sharing the same wealth which the owner-God has so willingly and freely given (Obstfeld & Rogoff, 2000). Hypothetical Research paper on the concept of monetary policy in its entirety Introduction The concept monetary as stipulated and outlined above, included here has explained the reasons as to why the central bank alters the rules and policies of engagement so as to reduce or increase the supply of money. This research endeavor will thus seek to explore the success of such policies and the economic and Biblical relevance that it has to the human society as a whole. It would also expound on the alternative options that may have higher rates or chances of success as compared to the monetary policies. It is also important to note and mention that this paper will discuss the prospective successes of the monetary policies in reviving the stagnant economies of the world such as in Japan and Europe. Statement of the problem Empirical evidence and assertions or allusions have pointed to the direction that monetary policies are temporal solutions that are incapable of solving the long-term challenges of the economy in an effective way or manner. It is thus imperative to explore the reasons as to why the European countries and Japan continuously use them to address their economic situation. It is to mention that the research paper will seek to contextualize the reasons as to why the European countries and Japan have failed to take any decisive and tough political actions (Mishkin & Savastano, 2001). It will explore better corrective economic measures such as the classical view to reviving and help grow their economy to higher heights. Theoretical framework The guiding theoretical framework lays on the premise or tenets that the monetary policies have been a total failure and have been unable to help the European Society and Japan to resolve their economic challenges and problems effectively. In reality, it may be practically difficult or virtually impossible for an economist to assert that the monetary policies have been a total failure in resolving economic challenges. Methodology Type of research This would be a cross of qualitative and quantitative research due to the nature of the study. It implies that the study will look at the level of welfare of the people in Japan and Europe or their quality of life before, during and after the enforcement of the monetary policy. The quality of life would include economic prospects such as investments that are usually done by people with funds or money obtained from banks and other micro-credit institutions. The quantitative aspect would focus on the numbers and real figures of people who get loans and all other credit services from other related institutions. Thus, this would be a cross mix of qualitative and quantitative research. It is important to note and mention that this an exploratory type of research which does not have any static hypothesis. This is so because the research process would strive to arrive at its conclusion having flowed on its own without the restrictions or limitations of a hypothesis. Respondents In order to arrive at the unbiased and proper inferences, it would be proper to get information and input or opinion of people who are concerned. To begin with, it would be beneficial to receive the opinion of the economic thinkers such a university professors and experts on the impact and implication of monetary policy to the economy (Bomfim, 2003). The customers and the citizens would also give their opinion and viewpoint on what happens during the monetary policy endeavors. Given the fact that the opinion of the Bible is also required, the clergy would also form the body of research participants. In brief, members of the clergy would also be required to offer and give their opinion on how the monetary policy or any of its components relate to the Bible (Bible, English. New Living Translation. (1996). Equally important, would be the opinion and input of the governments of Japan and the concerned European countries on why they continuously use the monetary policies even when the results are not so pleasant to grow the economy. Methods of data collection It would be critical to collect primary data and information and secondary sources of information and data. The primary source would include the information that would be obtained from the direct interviews with the concerned persons such as the experts and bankers themselves. This would be critical so as to gauge the believability and credibility of that information or their testimony. The direct information and evidence or testimony that we would receive from the direct participants would be key to drawing inferences and conclusions for the research process. The opinion and viewpoint of the experts would be the primary source for the study. Secondary sources of information would include things such as websites and written books or journals concerning the effectiveness of the monetary policies. It is also important and critical to say and mention that the literature review would also form a critical basis for knowledge and research. The term literature review in this case and aspect refers to the existing body of information and knowledge that has been done by experts in the previous times of history (Boivin & Giannoni, 2006). Therefore, this research would not arrive at any logical conclusion without articulating or studying the facts, figures and inferences of previous researchers and thinkers. Specifically, it would focus on what the previous scholars said on the ability and effectiveness of the monetary policies in improving the economy of any country. Methods of Data Analysis and presentation Given the nature and line of this research or study (exploratory) inferences and opinions of commonalities would be lumped together. The connecting of commonalities would be useful in the qualitative aspect of the research. On the other hand, the facts and figures obtained from the secondary sources and literature review would be used to draw graphs and charts (Cottarelli & Viñals, 2009). At the tail end, the graphs, charts and the commonalities would be used to make conclusions and draw inferences from the research and study conducted. It is important to note that research work could be erroneous or some variances are likely to occur in the process of data collection and analysis. A technique known as the Analysis of Variation (ANOVA) technique would then be used to correct such anomalies and variations. The main objective and end of the research is to obtain information and inferences or conclusions that are beyond reproach and are credible. Thus, this step and stage of the research process would be used to correct or revise any anomalies that might have occurred in the previous stages and steps of the research process. Report writing and presentation The findings realized and all the information collected would then be presented in the form of a report to concerned agency or body. For this hypothetical case and instance, it is notable that the report made would be presented to the Japanese and European countries. For instance, the report would offer other better option why they ought to explore other economic recovery options other than monetary policy in order to revive their stagnant and slow economy. Subsequently, it would be critical and key to explore other viable economic options such as the classical view of a free economy of demand and supply and market forces (Bernanke, Reinhart & Sack, 2004). For instance, if the Japanese and European nations government would allow the free forces of the market to determine their equilibrium then the economy may stabilize and clear at a comfortable place. Secondly, the report and its recommendation may include things such as freeing the economies by limiting the interferences from the government. This would be done so as to encourage investors to visit their countries and increase their national income, increase in the level of national employment amongst other positive incentives which are marks of economic growth. Similarly, it would be proper to give the Biblical perspective of the issue as outlined above in here. This is to say that the recommendations would also explain why the aspect or raising the interest rates to discourage are unbiblical since it is akin to chasing away people who are in need of help. Conclusion The above essay and research paper has critical expounded in an article found in the Wall Street journal and articulated approaches and issues of interest economically and Biblically. In principle, the United States of America government chided or mocked the continuous use of monetary policies over the years despite the fact that their economies did not show any signs or prospects of improvement or growth. The research paper has also covered and explained the reasons as to why other economic intervention measures would yield or bear higher results compared to the monetary policies being used by Europe and Japan (Gilchrist & Leahy, 2002). In comparative and analytical sense, this research has also expounded on the relevance of Christian values as compared to the tenets and basics of the monetary policy pursued and taken. Reference Arestis, P., & Sawyer, M. (2006). The nature and role of monetary policy when money is endogenous. Cambridge Journal of Economics, 30(6), 847-860. Benes, J., Berg, A., Portillo, R. A., & Vavra, D. (2015). Modeling sterilized interventions and balance sheet effects of monetary policy in a New-Keynesian framework. Open Economies Review, 26(1), 81-108. Blomberg, C. L. (2000). Neither poverty nor riches: A biblical theology of possessions (Vol. 7). InterVarsity Press. Bernanke, B., Reinhart, V., & Sack, B. (2004). Monetary policy alternatives at the zero bound: An empirical assessment. Brookings papers on economic activity, 2004(2), 1-100. Bible. English. New Living Translation. (1996). Holy Bible, New Living Translation. Tyndale House Publishers. Boivin, J., & Giannoni, M. P. (2006). Has monetary policy become more effective?. The Review of Economics and Statistics, 88(3), 445-462. Bomfim, A. N. (2003). Pre-announcement effects, news effects, and Volatility: Monetary policy and the stock market. Journal of Banking & Finance, 27(1), 133-151. Cottarelli, M. C., & Viñals, J. (2009). A strategy for renormalizing fiscal and monetary policies in advanced economies (No. 2009-2022). International Monetary Fund. Gilchrist, S., & Leahy, J. V. (2002). Monetary policy and asset prices. Journal of Monetary Economics, 49(1), 75-97. Mishkin, F. S., & Savastano, M. A. (2001). Monetary policy strategies for Latin America. Journal of Development Economics, 66(2), 415-444. Mankiw, N., & Hakes, D. (2009). Study Guide: Essentials of Economics (5th ed.). Mason, OH: South-Western Cengage Learning. Obstfeld, M., & Rogoff, K. (2000). New directions for stochastic open economy models. Journal of international Economics, 50(1), 117-153. Read More