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The impact of monetary policy on consumer price index (CPI): 1985-2010


par Sylvie NIBEZA
Kigali Independent University (ULK) - Master Degree 2014
  

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1.9.4 Exchange rate

The  exchange rate is used when simply converting one currency to another (such as for the purposes of travel to another country), or for engaging in  speculation or  trading in the  foreign exchange market. There are a wide variety of  factors which influence the exchange rate, such as  interest ratesinflation, and the state of politics and the  economy in each country.

Exchange rate is also called rate of exchange or foreign exchange rate or currency exchange rate.

1.9.5 Monetary policy

Johnson defines monetary policy as «policy employing Central bank's control of the supply of money as an instrument for achieving the objectives of general economic activity». It consists of those actions undertaken by a Central bank in pursuit of macroeconomic stability.

According to A. G. Hart, a policy which influences the public stock of money substitute of public demand for such assets of both that is policy which influences public liquidity position is known as a monetary policy.

From both these definitions, it is clear that a monetary policy is related to the availability and cost of money supply in the economy in order to attain certain broad objectives.

The Central bank of a nation keeps control on the supply of money to attain the objectives of its monetary policy. Monetary policy is regulation of the money supply by the Fed in order to influence aggregate economic activity; the Fed's role in supplying money to the economy.

Economic regulation is a Government's measure aimed to controlled price, output, market entry and exit, and product quality in situations where monopoly is inevitable or desirable.

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