Definition of expansionary monetary policy

A policy by monetary authorities to expand money supply and boost economic activity, mainly by keeping interest rates low to encourage borrowing by companies, individuals and banks. An expansionary monetary policy can involve quantitative easing, whereby central banks purchase assets from banks. This has the effect of lowering yields on bonds and creating cheaper borrowing for banks. This, in turn, boosts banks' capacity to lend to individuals and businesses. An expansionary monetary policy also risks ramping up inflation.

 

expansionary monetary policy in the news

In June 2013, Martin Wolf, an FT columnist, commented that as yields on bonds of highly rated sovereign had risen it was a sign of success. He wrote this could mean that investors could expect an earlier exit from quantitative easing and other forms of expansionary monetary policy than had been foreseen.

In July 2013, the president of the Peterson Institute for International Economics, Adam Posen, wrote that despite unjustified claims, quantitative easing and other forms of expansionary monetary policy, as pursued by Japan, did not constitute currency manipulation. Instead the policy had been pursued with purely domestic aims.

In September 2013, an FT Alphaville blog alluded to an argument over the true causes of the great inflation period of the 1970s. It was suggested that instead of the inflation being a result of expansionary monetary policies, it was due to population demographics: namely baby boomers and females entering in the work force.

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