© 2000 John Petroff
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© 2000 John Petroff |
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The monetary policy component comes especially into play as a result of either unusually tight or unusually easy money policy of the central bank. The case of tight policy was the most obvious in the early 1980's in the United States, when interest rates jumped as a result of the total lack of loanable money.
| In the mid 1990's in Russia, the need to control inflation caused similar credit starving and abnormally high interest charges. Increases in required reserve ratios for Russian banks was evidence of tight money policy in Spring 1995: it reduced money growth and therefore inflation, but it also pushed interest rates excessively high. |
The use of monetary policy further distorts the yield curve. See further comments in Chapter 15 Section C.
See research assignment R-D5.1.
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