Definition of monetary policy

The decisions a monetary authority makes to manage the money supply. The tools at its disposal include modifying benchmark interest rates (such as the Fed funds target and the discount rate in the US), conducting money market operations (which influence short-term interest rates), and changing banks' reserve requirements. Depending on whether the authority wishes to expand money supply, keep it steady or reduce it, monetary policy can be described as accommodative (or loose), neutral or tight.

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