Essay on Monetary Policy and Economic Growth

Bojan Dimitrijević () and Ivan Lovre ()
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Bojan Dimitrijević: Faculty for business in services, dean
Ivan Lovre: Faculty of business economy, teaching assistant

Journal of Central Banking Theory and Practice, 2013, vol. 2, issue 1, 111-138

Abstract: The global economic crisis has led to the global reduction in credit activity, a fall of domestic product as well as the level of foreign direct investments, and has imposed the sources of economic growth as one of the key problems. Therefore, the objective of this paper is the monetary policy review and the task is to research the circumstances when it is possible for the money supply to become the source of economic growth without inflationary consequences. The paper analyzes the demand and supply functions for money, the quantity theory of money, velocity of circulation and instruments of monetary policy and strives to propose such a combination of measures of a new economic policy based on theoretical arguments that will stimulate economic growth. This aim requires a completely new approach to the mechanism of money creation and selection of monetary instruments, proposing the money supply connection to the growth of real GDP, the money supply control as the key instrument, and a low and stable long-term interest rate as the factor for maintaining stability of velocity. In such case, monetary policy will have a real impact on economic growth, even in the long run.

Keywords: quantity theory of money; velocity of money; deposit multiplication; interest rate; new monetary policy (search for similar items in EconPapers)
JEL-codes: E51 E52 E58 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:cbk:journl:v:2:y:2013:i:1:p:111-138

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