Monetary Policies In The Developing Countries

3723 words - 15 pages

IntroductionMain partMonetary policy in UzbekistanIssues of monetary policy in UzbekistanMonetary policy in KazakhstanIssues of monetary policy in KazakhstanConclusionINTRODUCTIONMonetary policy is designed to control the circulation of money in the economy aimed towards various macroeconomic goals such as full employment, low inflation and steady economic growth. The main component of this economic policy is the rate of interest, which is supposed to influence the economy quickly and smoothly through the cost of money.There is another policy, known as fiscal policy, which involves the control of taxation and government spending. Both policies belong to the demand-side category. On the other hand there are supply-side policies, designed to affect aggregate supply by means of altering costs or productivity (Sloman, 2003).According to monetarist economists, the monetary policy is a better device than fiscal policy in controlling inflation. Indeed, it is probably the best method of influencing aggregate demand so as to provide most favourable conditions for the development of market economy.However, there are some drawbacks, such as time lags, which depend on the interest elasticity of demand, e.g. demand for goods bought on credit or demand for investment from private companies. The other disadvantage is that some industries and regions of the economy are differently affected and exposed to change in policy (www.tutor2u.net).Money has existed for centuries. Central Banks have begun to operate more recently, and the modern model of Central Banks has started to function even later, when paper money and commercial banks have appeared.Today any country, even the smallest country of the world, has its own Central Bank. It has two tasks. Firstly, it must guarantee stability in the functioning of banking and financial systems, which involves foreseeing the emergence of financial panic, which can easily occur in the financial system with a wide range of intermediary institutes. The second task is to generate monetary policy stressing on certain tools with right timing.This essay is going to discuss the monetary policies in developing countries, particularly Uzbekistan and Kazakhstan, their changes throughout the period since USSR collapsed in 1992, and their effectiveness in the short-run and in the long-term.Implementing monetary policy in developing countries involves the accumulated experience of both developed and third world countries. In other words, it involves the improvements and consequences that the use of monetary policy tools of Central Banks has mostly led to.In my opinion, the monetary policy plays the key role in reaching macroeconomic stability in the third world and other countries that are in transition to democracy, where main macroeconomic indicators are unstable, especially inflation.The aim of this essay is to research the main instruments that are used by the Central Banks of these two former soviet countries and the effectiveness...

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