Monetary Policy and Impact of FII Inflows (Published)

Brief Abstract: The world is global today. So are the financial markets. The world today trades more in finance than in goods and services. Monetary policy of different countries which target domestic inflation and interest rates as its objective is facing the challenge of these flows on the net liquidity in the economy. Traditionally we measured money supply by M3, and it served its purpose. But with excessive FII flows in the capital markets M3 ceases to be an indicator of money available to various sectors in the economy. Though M3 is the aggregate of measuring money supply. But in the excessive capital flows, the amount of liquidity in the economy increases more than the amount of money supply. M3 fails to measure that. A new measure of money supply is Aggregate Banking Finance.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s