Then recall that it usually takes at least two quarters for monetary policy to have an effect.
And such hard exchange-rate regimes do not offer suitable policy instruments for domestic economic management: Argentina's monetary policy was, in effect, made in Washington and was often inappropriate for Argentina's needs.
But policymakers' reluctance to let their currencies rise faster against the dollar means that their monetary policy is, in effect, being set by America's Federal Reserve, and is therefore too lax for these perkier economies.
Inflation was believed to be driven largely by non-monetary factors, and most people believed that if you tried to control inflation using monetary policy, the primary effect would be to throw a lot of people out of work.
If the markets start to believe a country's deficit is out of control they will force its bond yields sharply higher, in effect tightening monetary policy.
They have, however, had an outsized effect on monetary policy because fears over some countries' solvency have made investors less willing to finance any of their banks (see article).
That in effect eases monetary policy and is an overt signal from China that it wants its economy to grow and it will accept more commodity imports to achieve its better economic growth.
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But monetary policy has only a slight effect.
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Argentina's inflexible currency-board scheme not only pegs the peso at par to the dollar but limits the money supply to the level of hard-currency reserves, in effect turning monetary policy over to the United States' Federal Reserve.
This does not mean that monetary policy alone can offset the contractionary effect of the current massive disruption in the credit markets.
In this tinker-toy model, you might expect the late Fall and Winter to be the time with the lowest shadow rate and in effect the easiest monetary policy.
He said the rise in commodities prices is a side-effect of the loose monetary policy.
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That is a big difference from inflation targeting, which always looks forward and, in effect, treats every monetary policy committee meeting as if it were the first.
By pegging to the dollar, it is, in effect, importing America's monetary policy, which is too loose for China's fast growing economy.
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Members of the Bank of England's Monetary Policy Committee will have to decide whether the dominant effect of the energy price rise is to reduce demand from the economy, so that the long term prospects for inflation returning to target are improved, or to dangerously increase underlying inflationary pressures.
Mr. Lindsay suggested that, going forward, monetary policy and intervention by the Federal Reserve would likely have little effect.
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Some central banks, slow to grasp the effect of these structural changes on inflation and monetary policy, have been running overly loose policies that have fuelled unsustainable booms in America and some other economies.
Indeed, the current Bank of England governor thinks the general mood in financial markets suggests that monetary policy here and around the world is having, if anything, too much effect on asset prices.
We chose to look at the period between 1970 and 1980 and then again between 2002 and 2012, because these time frames both had big deficits and loose monetary policy, and they straddle the time in which the most significant changes to the CPI methodology took effect.
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