Comparison of Monetary Policy Instruments

COMPARISON OF MONETARY POLICY INSTRUMENTS

The objective of this research is twofaceted. First, the monetary policy instruments applied by the central banks in Brazil and the United Kingdom, together with the effectiveness of those applications, are examined and compared with one another. Second, the application of monetary instruments and the effectiveness of that application by the central bank in the United Statesthe Federal Reserveare examined.

The Use of Monetary Instruments in Brazil

The application of monetary instruments and the effectiveness of those applications are considered separately for Brazil and the United Kingdom. The use of monetary instruments by the two countries then is compared.

The Use of Monetary Instruments in Brazil

The first Arab crude oil embargo in the early1970s set the economies of Latin American countries into an economic tailspin. The resulting economic problems were particularly acute in Brazil Sola, 1993, pp. 2-19.

In Brazil, economic chaos was punctuated by conflicting experimentation in the development and implementation of economic policy by domestic leaders, and by meddling from the international communityprimarily the United States and its surrogate the International Monetary Fund (IMF) (Pang, 1989, pp. 127-140). In Brazil, numerous economic stabilization plans were implemented by the government, and most of these plans were subsequently approved by the IMF. Complicating the sta

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est rates. Initially, monetary targeting in the United Kingdom focused on ?M3; however, this focus recently has shifted to ?M0. ?M0 is the narrowest measure of the money supply. Beginning in the latesummer of 1994, the Chancellor of the Exchequer introduced a stiff new interest rate policy designed to control inflation ("Willkomen Herr Clarke..." 1994, p. 61). This action was somewhat analogous to the contemporary actions of the Federal Reserve in the United States, as inflation was not a problem at the time in either of the countries. In Britain, however interest rates were bumped up to 15 percent, a level that would have caused riots in the streets in the United States where there was grumbling over levels less than half that high. The British interest rates were in support of a monetary policy targeting an annual inflation rate in the 1.0to2.5 percent range. The Bank of England continues to worry about the prospects of rising inflation ("Waiting For A Rise" 1994, p. 56). Interests rates, therefore, may be raised again. The monetary planners at the Bank of England also are concerned about rapid growth in the British economy, a concern shared by the Federal Reserve in relation to the contemporary economy in the United

Category: Economics - C