gvA Update

Critics of some of the policies of the Federal Reserve Bank (Fed), the Central Bank of the United States often warn that their policies, especially quantitative awing would be ineffective; or, even if effective in creating jobs would perversely generate high inflation and the collapse of the US dollar. So, in a developing country like Nigeria, how would monetary policy help in job creation? How can it help also in income distribution? It is often argued that poverty tends to get get worse in more unequal countries, as consumption growth is slower given a percentage change in income. Certainly, inequality and lack of social mobility are critical issues in developing countries. The evidence of significant social mobility where the poor rise steadily into higher income brackets shows that well paying jobs are being created. According to Ben Bernanke, a former chairman of the US Federal Reserve, most economists would agree that monetary policy is “neutral” or nearly so in the longer term, meaning that it has limited long-term effects on “real” outcomes like the distribution of income and wealth. But he argues that monetary policy, if properly managed, promotes greater economic stability and prosperity for the economy as a whole, by mitigating the effects of recessions on the labor market and keeping inflation low and stable. Now, let us be clear, the primary objective of the monetary policy and therefore the Central Bank is price stability. In my opinion, the fiscal policy by the government is the most responsible for creating jobs. As Bernanke has said, policies designed to affect the distribution of wealth and income are, appropriately, the province of elected officials, not the Fed. Sometimes monetary policy is aggressive because elected officials on the fiscal side are busy playing politics. Unfortunately, this exaggerated visibility of monetary policy often causes monetary authorities to be needless held accountable for injury not caused by them. And even when the injury is not their fault, they must fix it, and if they can't solve it all, they are incompetent. For monetary authorities to be helpful in creating jobs using lower interest rates, they must first focus squarely on stabilizing prices. With low inflation, interests rates would be affordable and banks can lend for investments that would promote employment generation and higher incomes. Unfortunately, when runaway inflation becomes a threat the central bank must act decisively by raising indicative interest rates and this often can hurt job growth. Indeed monetary policy would be less aggressive if fiscal policymakers took more of the responsibility for promoting economic recovery and job creation. In the end, we need monetary policy to complement fiscal policy in order to create jobs and maintain a stable economy. I am Magnus Kpakol, and that is my view.

 

Posted: Aug 24th, 2016 @ 01:54:30 AM