What are the monetary policy tools?

Monetary policy tools are divided into general tools and selective tools. General monetary policy tools include open market operation, deposit reserve and rediscount; Selective monetary policy tools include loan scale control, special deposits, window guidance to financial enterprises, etc.

At present, China's monetary policy tools mainly include open market operation, deposit reserve, refinancing and rediscount, standing loan facility, interest rate policy, exchange rate policy, moral advice and window guidance.

Monetary policy, that is, financial policy, refers to various principles, policies and measures adopted by the central bank to control and regulate the money supply and credit quantity in order to achieve its specific economic goals. The essence of monetary policy is that the country's money supply adopts different policy trends such as "tight", "loose" or "moderate" according to the economic development in different periods.

Using various tools to adjust the money supply to adjust the market interest rate, the change of market interest rate will affect private capital investment and total demand to affect macroeconomic operation. The four tools of monetary policy to adjust aggregate demand are statutory reserve ratio, open market business and discount policy, and benchmark interest rate.

Limitations:

First, the effect of tight monetary policy may be obvious in the period of inflation, while the effect of expansionary monetary policy is not obvious in the period of economic recession.

Second, from the balance of the money market, if increasing or decreasing the money supply will affect the interest rate, it must be based on the premise that the money circulation speed remains unchanged.

Third, the external lag of monetary policy will also affect the policy effect.

Fourth, in an open economy, the effect of monetary policy will be affected by international capital flows. For example, if a country implements a tight monetary policy, interest rates will rise and foreign funds will flow in. If interest rates fluctuate, the local currency will appreciate, exports will be restrained, and imports will be stimulated. In this way, the decline of domestic total demand will even exceed that of closed economies.