New Monetary Policy Strategy Guarantees Stability and Credibility in Economy
The article argues that using both money supply and repo interest rate as separate tools for monetary policy can help stabilize the economy. By controlling money supply, the central bank can bridge the gap between repo interest rates and rates at which people borrow and lend money. This two-pillar approach, like the one used by the European Central Bank, can ensure economic stability and build trust in monetary policy. However, simply targeting inflation or following Friedman's money supply rule alone may lead to instability. Different feedback rules can be used depending on the economy's structure and central bank preferences to maintain stability.