An Introduction to Monetary Policy

Four years have passed and the world economy still hasn’t fully recovered from the 2008 financial crisis. Monetary policy has become a frequent and important topic in news reports, as economists and commentators often debate on what central banks should and shouldn’t do to save the economy. It seems a basic knowledge of monetary policy is now essential for anybody who wants to understand economic and financial news.

This 4-part series serves as a comprehensive introduction to monetary policy. In addition to explaining the tools and transmission mechanisms of monetary policy, I’ll argue that monetary policy alone is insufficient in a severe financial crisis. Since a financial crisis is different from a typical recession, fiscal stimulus is needed to complement monetary policy.

To learn what monetary policy is really about, click on the links below:

Part 1  The Traditional Tools of Monetary Policy

Part 2  How Monetary Policy Works and Differs from Fiscal Policy

Part 3  Liquidity Trap and Unconventional Monetary Tools

Part 4  The Insufficiencies of Monetary Policy in a Severe Financial Crisis 

Most of the theories in Part 1 and Part 2 can be found in undergraduate economics textbooks. To avoid the trouble of citations for all these basic concepts, I’ll simply put down a list of the relevant textbooks that I’ve read in class at the end of these entries.

I hope you'll find these articles helpful and informative. Please feel free to leave a comment.
  
P.S. A sincere thank you to Banbi for inspiring me to start this blog.