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Showing posts with the label monetary transmission

Decision Making as Output and Bounded Rationality

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  The classical economics theories proceed on the assumption of rational agents. Rationality implies the economic agents undertake actions or exercise choices based on the cost-benefit analysis they undertake. The assumption further posits that there exists no information asymmetry and thus the agent is aware of all the costs and benefits associated with the choice he or she has exercised. The behavioral school contested the decision stating the decisions in practice are often irrational. Implied there is a continuous departure from rationality. Rationality in the views of the behavioral school is more an exception to the norm rather a rule. The past posts have discussed the limitations of this view by the behavioral school. Economics has often posited rationality in the context in which the choices are exercised rather than theoretical abstract view of rational action. Rational action in theory seems to be grounded in zero restraint situation yet in practice, there are numerous restra
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A Note on Monetary Polcy

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  The aggregate demand is defined by the identity Y=C+I+G+(X-M). Implied is the aggregate demand is the sum of consumption, investment, government expenditure and net exports. If the government intends to create a trajectory for the AD, it can alter one or more than one of these variables to meet its intended policy objectives. The government itself is autonomous player and thus can influence the economy through increased or decreased government spending G. Indirectly, the government can influence the spending through two different instruments, the fiscal and the monetary policy. The fiscal policy apart from the changes in government expenditure would also comprise of changes in tax rates. The government can increase or decrease tax rates thus influencing consumption, investment and net exports. The second instrument, the government employs is the monetary policy. It is through the instrument of interest rates, the government seeks to control the money supply and thus influence aggrega
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RBI, Onions and Monetary Policy

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The outcome of RBI’s sixth and final bimonthly monetary policy statement for the FY 2019-20 is unsurprising. Repo has been retained at 5.15% and therefore the other rates like MSF, reverse repo, bank rate etc. too remain unchanged. RBI projects a growth of 6% something in alignment with what the budget has projected. They anticipate higher uncertainty in inflation. The question however, is given the macroeconomic dynamics at the current instant, could RBI stance been bolder or was it cautious reiteration of its mandate. As one delves in to the RBI monetary policy statement (available here ) some interesting pointers emerge. Global headwinds continue to impact the Indian economy too. There is no respite for European economies like France and Italy on the continued downward growth trend. Britain will have to confront with post Brexit uncertainties. US Iran tensions may have eased down momentarily but the impact might take a time to ease out, US-China trade wars demonstrate ebbs an
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