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Essay on Monetary Policy and Economic Growth

Author

Listed:
  • Bojan Dimitrijević

    () (Faculty for business in services, dean)

  • Ivan Lovre

    () (Faculty of business economy, teaching assistant)

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.

Suggested Citation

  • Bojan Dimitrijević & Ivan Lovre, 2013. "Essay on Monetary Policy and Economic Growth," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 2(1), pages 111-138.
  • Handle: RePEc:cbk:journl:v:2:y:2013:i:1:p:111-138
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    File URL: http://www.cbcg.me/repec/cbk/journl/vol2no1-6.pdf
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    References listed on IDEAS

    as
    1. Stephen Cecchetti & Enisse Kharroubi, 2012. "Reassessing the impact of finance on growth," BIS Working Papers 381, Bank for International Settlements.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

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

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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