Question

definition and explanations

ERM;
OCA Theory;
Rule-based Monetary Policy;
Taylor Rule & Principle.

Answer 1

ERM : Enterprise Risk Management is methods and processes used by organization to manage the risk which might be faced by the organization. It also includes seizing the opportunities by the organization in order toachive the objectives. It includes a detailed plan to identify the various opportunities for the organization to achieve the objectives, measuring its impact, developing a detailed response strategy and monitoring the progress on aregular basis.

OCA Theory : OCA Theory or Optimum Currency Area Theory developed by Robert Mundell, is to locate a geographic region where economic efficiency can be maximized by having a common currency. It is to develop a geographic region where currency union can be developed.

Rule based Monetary policy : Rule based monetary policy involves a Central Bank to undertake expansionary or contractionary monetary policy in order to maintain a certain price level. It is utilized during the time of inflation and the government measures tocontrol inflation by making use of contractionary or expansionary monetary policies. Contractionary policy is to increase the interest in order to tighten the money supply in the market whereas expansionary monetary policy is to reduce the interest rate in order to increase the money supply in the market.

Taylor Rule & principle : Taylor rule principle is a reduced form approximation of the responsiveness in the nominal interest rate with respect to inflation, output and GDP. It generally indicates how much is the percentage increase in the nominal interest rate with respect to economic indicators like inflation, output and GDP.