Monetary Policy : Two rates policy.?

One Response to “Monetary Policy : Two rates policy.?”

1. Ryan says:

   September 30, 2010 at 2:25 am

   Well those rates are targets set in lending money to banks so they can lend out to consumers. Before anything there would need to be conditional regulations on what banks could do with the rates. They would then need some sort of regulatory board to make sure they act appropriately.

   You would also need some way of targeting the certain category. And they would need to screen for credit worthyness.

   Finally there would need to be regulations ensuring that banks aren’t cranking up rates in excess of what the government has limited it too.

   Assuming all this could be done it is likely it would increase home buying. The subprime crisis shows that cheap credit allows for large homeownership. Demand and prices of homes would increase.

   Likely this would create some inflationary pressure since more money would be available. However much of this would be going into the housing sector so I suspect it wouldn’t create as much inflation as a universal prime rate.

   That’s my view on it.

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