Modern Monetary Policy
3 Pages Posted: 11 Nov 2014
Date Written: November 4, 2014
Abstract
Monetary policy pursued in the last few years by major central banks resulted in many pathological outcomes. Income inequality has risen, risky asset valuations became dangerously inflated, banks has engaged in speculative transactions at unprecedented scale, and low interest rates discourage savings at times when many public, defined benefits pension schemes are on the verge of bankruptcy. At the same time credit to business sector is stagnant or falling, which reduced prospects of vibrant economic recovery. This concept paper proposes new framework for monetary policy, which is much more effective in stimulating growth and avoids above mentioned unwelcome outcomes. It proposes dual interest rate regime. One interest rate, lower, near zero or negative that applies to business development loans, and second, higher and positive that applies to all other loans.
Keywords: monetary policy, interest rate, dual interest rate regime
JEL Classification: E52, E58
Suggested Citation: Suggested Citation