Last time, we started to explain what monetary policies were. We looked at how governments used contractionary and expansionary policies to help control the economy. This time around, we will look at more unusual policies. We will also look at how governments implement policies overall.
There have been some unusual methods that governments have used recently. These are a sort of middle ground between contractionary and expansionary policies. It would be difficult to describe them succinctly, so, instead, we shall give some examples of them.
2008 was the heart of the last major financial crisis. To help the country out, the Fed spent the equivalent of trillions of dollars to try to fix the situation. This was mainly by putting treasury notes and mortgage-backed securities into their balance sheets. After all, mortgages were the main source of the crisis. This was a sort of combination of prior monetary policies that people had not seen before.
Banks world over the followed suit, as they also had the same problem. This includes the European Central Bank and the Bank of England.
Putting policies in place
There are a lot of different ways to put such monetary policies into place. It is usually a central bank’s job to do this.
One method is by exchanging short-term bonds over the market, to the public. This sort of strategy deals with federal fund rates.
Central banks also have power over interest rates. Other banks have to follow suit. Another thing a central bank can do is change the collateral necessary for direct loans that other banks may need.
Overall then, the main job of monetary policy is to keep economies going. It is usually something central banks deal with. They usually want neither too much uncontrollable growth nor a contraction. They will adjust their policies according to the situation.