Question

Explain the monetary transmission process prior to 2008. Explain your answer in a paragraph of at least 300 words.

Answer 1

The monetary transmission process is actually which asset prices and general conditions of an Economy are affected as a result of monetary policy decisions. Basically monetary transmission mechanism explains how the actions of the Federal Reserve Bank affect aggregate economic variables and in particular real gross domestic product.

Before 2008 , many emerging market economies inability to supply safe assets which forcing them to accumulate US dollar assets. The explanation here clearly highlights a great monetary policy shock in the form of a failure by a decline in natural interest rate with reductions in the fund rates.

The great recessions of 2007-09 and its aftermath the US monetary policy prior to 2008 ,the Federal Reserves balance sheet stood at less than $ 1 trillion dollars about 7% of GDP . The Fed security holdings and liabilities are nearly approximately $ 4.5 trillion dollars which is about 25% of GDP.Most of those liabilities was exists as excess reserves in the banking system. prior 2008 , excess reserves were essentially zero.

The US Economy weekend steadily throughout 2008 . To ensure a monetary and interest rate environment that enables continuation of the growth momentum consistent with price stability while being in readiness to act in a timely and prompt manner on any signs of evolving circumstances impinging on inflation expectations. To focus on credit quality and financial market conditions to support export and investment demand in the economy for maintaining macroeconomic, in particular, financial stability. To respond swiftly to evolving global developments. After reviewing those situations , maintaining macroeconomic, in particular, financial stability. To respond swiftly to evolving global developments.After reviewing the Economists monitored, To reinforce the emphasis on price stability and well anchored inflation expectations while ensuring a monetary and interest rate environment that supports export and investment demand in the economy so as to enable continuation of the growth momentum. To re-emphasise credit quality and orderly conditions in financial markets for securing macroeconomic and, in particular, financial stability while simultaneously pursuing greater credit penetration and financial inclusion. To respond swiftly with all possible measures as appropriate to the evolving global and domestic situation impinging on inflation expectations and the growth momentum.

The U.S. economy has recovered steadily, if somewhat slowly, since the end of the Great Recession. After peaking at over 10 percent in 2009, the civilian unemployment rate at the time this article was written was close to 5.5 percent. Despite the more than fourfold increase in the supply of base money, personal consumption expenditures inflation undershot the Fed’s 2 percent target throughout much of the recovery .