The goal of economic-policies is to achieve low-inflation
and low unemployment with highest possible potential for the economic-growth...
The first two are the primary objects while the economic-growth is the
underlying objective... Probably, market stabilization might entail these with
clear and present situation... However, we do not need MSS (Market
Stabilization (Securities) Scheme), today it has beed proposed to bring those with the help of
the RBI, right- away, because inflation and inflation expectations are
committed lower in INDIA with bias for more expansion in the money-supply and
the expected growth-rate which has a direct effect on investment, unemployment
and (wages and) incomes and the demand and the economic-growth-real-GDP...
Higher expected economic-growth-rate or the real-GDP (expectations)
incentivizes investment... In the Harrod-Domar sense it is the warranted growth...
we have two other growth-rates... The actual-growth-rate - the
current-growth-rate-and the natural-growth-rate or the potential-growth-rate -
the rate of growth of the labour-force...
The convergence of all the growth–rates is in the same
direction in the long-run. When the actual-growth-rate diverges from the
warranted growth-rate or the expected growth-rate or the natural-growth-rate
or the pace of increase in the labour-force or the economy produces less
jobs or there is unemployment or when demand and inflation are low, we require loose money-supply, otherwise we need tightening in case of high-demand and inflation… A higher
actual growth rate might also increase real GDP growth-rate expectations in the next-period…
Shaping expectation is one important task of the
economic-policies… But, shaping expectation sometimes may take time… It works
with a lag or when people actually feel the outcome or based on current situation,
when they know which policy suits then better and create a positive response… For a very long-period in the
history inflation and inflation expectation were more common than deflation… However,
countries, like Japan, are reeling under deflation for the past two-decades and
have tried a lot to increase inflation and inflation expectation to cut
real-wages and for competitive exports…
Withstanding, lower real-wages-than productivity has
crippled domestic-demand and also the external-demand (for imports) which has set
the process of evaporating wages gains and demand… However, international-trade
is more expansionary, but at the cost of the domestic demand… But, why a
country would increase exports at the loss of the domestic demand…? Domestically, lower prices and higher consumption would increase Welfare…
Therefore, it is fairly possible to have disinflation
or deflation and expectations based on the historical evidences as in Europe and
Japan where nominal interest-rates are negative to ward-off deflation.
Economists’ fear that deflation would make people
delay purchases in the expectation of lower prices are ahead, but everybody
knows that supply is limited… People would rush to buy the inventories…
Moreover, lower prices would help lower-interest-rate and may also likely to increase
internal-devaluation and increase the exports…
INDIA needs not to emulate the old model for inflation,
depreciation and exports… However, occasional depreciation of the Indian
currency could increase exports, too…
INDIA might also help to increase exports by
increasing demand for imports and higher real-wages in the trading-partners
economy… Higher real-wages abroad could also increase demand for Indian
exports, whereas higher real wages would also boost domestic-demand…
Lower-prices would increase real-wages – at home and
abroad too…
INDIA has committed to a disinflationary-path, also
through demonetization which is likely to increase higher real-wages and
expectations, but would take time to adjust to the right money-supply when 80%
of the notes are being recycled…
The RBI has set to maintain the liquidity with Rs 2000
notes… Probably, it would limit the circulation to match the money-quantity as
before the ban… The sooner the policy makers help mitigate the cash crisis,
either by cashless-transactions or other means, the sooner we would achieve the
stability in the market…
Demonetization could help lower inflation and
inflation expectations which would increase spending provided the cash-gap
recovers soon…
Lower-prices and higher real-wages and incomes expectation
would increase demand and spending and the economic growth-rate, globally,
including the domestic…
No comments:
Post a Comment