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Essay on Monetary Policy and Economic Growth

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  • Bojan Dimitrijević

    ()
    (Faculty for business in services, dean)

  • Ivan Lovre

    ()
    (Faculty of business economy, teaching assistant)

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    Abstract

    The global economic crisis has led to the global reduction in credit activity, a fall of domestic product as well as the level of foreign direct investments, and has imposed the sources of economic growth as one of the key problems. Therefore, the objective of this paper is the monetary policy review and the task is to research the circumstances when it is possible for the money supply to become the source of economic growth without inflationary consequences. The paper analyzes the demand and supply functions for money, the quantity theory of money, velocity of circulation and instruments of monetary policy and strives to propose such a combination of measures of a new economic policy based on theoretical arguments that will stimulate economic growth. This aim requires a completely new approach to the mechanism of money creation and selection of monetary instruments, proposing the money supply connection to the growth of real GDP, the money supply control as the key instrument, and a low and stable long-term interest rate as the factor for maintaining stability of velocity. In such case, monetary policy will have a real impact on economic growth, even in the long run.

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    File URL: http://www.cbcg.me/repec/cbk/journl/vol2no1-6.pdf
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    Bibliographic Info

    Article provided by Central bank of Montenegro in its journal Journal of Central banking Theory and Practice.

    Volume (Year): 2 (2013)
    Issue (Month): 1 ()
    Pages: 111-138

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    Handle: RePEc:cbk:journl:v:2:y:2013:i:1:p:111-138

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    Related research

    Keywords: quantity theory of money; velocity of money; deposit multiplication; interest rate; new monetary policy;

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    1. Stephen Cecchetti & Enisse Kharroubi, 2012. "Reassessing the impact of finance on growth," BIS Working Papers 381, Bank for International Settlements.
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