{"id":114540,"date":"2021-06-24T11:33:23","date_gmt":"2021-06-24T06:03:23","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=114540"},"modified":"2021-06-24T11:33:23","modified_gmt":"2021-06-24T06:03:23","slug":"save-jobs-or-protect-savers-a-new-monetary-policy-dilemma","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/save-jobs-or-protect-savers-a-new-monetary-policy-dilemma\/","title":{"rendered":"Save jobs or protect savers? A new monetary policy dilemma"},"content":{"rendered":"\n<p><b><span data-contrast=\"none\">Context<\/span><\/b><span data-contrast=\"none\">: Should RBI increase the interest rate or continue with its accommodative stance? A new model has also been suggested \u2013 HANK (Heterogenous Agents New Keynesian).<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<h5><b><span data-contrast=\"none\">Introduction<\/span><\/b><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/h5>\n<p><span data-contrast=\"none\">While the world is still debating whether modern monetary theory (MMT), which encourages governments to spend without having any meaningful fiscal constraints, should be the norm, something new has been for India\u2014 Heterogenous Agents New Keynesian (HANK) model.<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<h5><b><span data-contrast=\"none\">What is HANK?<\/span><\/b><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/h5>\n<p><span data-contrast=\"none\">In simple terms, the model suggests that interest rates can be kept low for the greater good. While a section of depositors does get affected, not all savers may necessarily be negatively impacted when central banks push down the interest rates.<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<ul>\n<li data-leveltext=\"\u00b7\" data-font=\"Symbol\" data-listid=\"26\" aria-setsize=\"-1\" data-aria-posinset=\"201\" data-aria-level=\"1\"><b><span data-contrast=\"none\">Rationale behind HANK<\/span><\/b><span data-contrast=\"none\">: The central idea behind the HANK model, is that by increasing demand with monetary expansion, firms would ramp up production. This would improve their survival rate amid a deep shock like the pandemic and protect jobs that would eventually push more wages and salaries in the hands of households, most of whom may get compensated for a drop in their interest incomes on saving.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"wp-image-114534 size-full aligncenter\" src=\"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2021\/06\/Capture-hsaduq.png?resize=383%2C253&#038;ssl=1\" alt=\"\" width=\"383\" height=\"253\" srcset=\"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2021\/06\/Capture-hsaduq.png?w=383&amp;ssl=1 383w, https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2021\/06\/Capture-hsaduq.png?resize=300%2C198&amp;ssl=1 300w\" sizes=\"auto, (max-width: 383px) 100vw, 383px\" \/><\/p>\n<ul>\n<li data-leveltext=\"\u00b7\" data-font=\"Symbol\" data-listid=\"26\" aria-setsize=\"-1\" data-aria-posinset=\"202\" data-aria-level=\"1\"><span data-contrast=\"none\">The HANK model also depends on\u00a0<\/span><b><span data-contrast=\"none\">fiscal policy<\/span><\/b><span data-contrast=\"none\">\u00a0to address part of the price stability concerns, traditionally the main job of a central bank. The central bank on its part can do many things \u2013\u00a0<\/span><b><span data-contrast=\"none\">it can keep interest rates low, enhance liquidity, or even do direct or indirect\u00a0monetization\u00a0for the government<\/span><\/b><span data-contrast=\"none\">\u00a0to help it spend more. This helps growth, generates demand, and can\u00a0<\/span><b><span data-contrast=\"none\">give rise to inflation<\/span><\/b><span data-contrast=\"none\">.\u00a0<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li data-leveltext=\"o\" data-font=\"&quot;Courier New&quot;\" data-listid=\"26\" aria-setsize=\"-1\" data-aria-posinset=\"52\" data-aria-level=\"2\"><span data-contrast=\"none\">The government then formulates tax policies that redistribute income to people who are in dire need.\u00a0<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li data-leveltext=\"\u00b7\" data-font=\"Symbol\" data-listid=\"26\" aria-setsize=\"-1\" data-aria-posinset=\"203\" data-aria-level=\"1\"><b><span data-contrast=\"none\">What HANK doesn\u2019t recommend?<\/span><\/b><span data-contrast=\"none\">\u00a0&#8211; HANK, however, does not suggest unrestrained spending for long. This\u00a0specialised\u00a0policy comes in handy when the country is witnessing a once in a century crisis.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<h5><b><span data-contrast=\"none\">Why\u00a0should RBI\u00a0continue with its accommodative stance?<\/span><\/b><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/h5>\n<p><span data-contrast=\"none\">A continuation of RBI\u2019s accommodative stance is necessary in the backdrop of the second wave and to help support a sustainable recovery through lower rates and easier financial conditions.<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<ul>\n<li data-leveltext=\"\u00b7\" data-font=\"Symbol\" data-listid=\"27\" aria-setsize=\"-1\" data-aria-posinset=\"204\" data-aria-level=\"1\"><span data-contrast=\"none\">Lowest monetary policy rates ever\u00a0are\u00a0also justified at a time when the pandemic managed to push the gross domestic product (GDP) to its deepest contraction in the last fiscal year.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<h5><b><span data-contrast=\"none\">Why\u00a0should RBI\u00a0discontinue\u00a0with its accommodative stance?<\/span><\/b><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/h5>\n<ul>\n<li data-leveltext=\"\u00b7\" data-font=\"Symbol\" data-listid=\"27\" aria-setsize=\"-1\" data-aria-posinset=\"205\" data-aria-level=\"1\"><b><span data-contrast=\"none\">Impact on pensioners<\/span><\/b><span data-contrast=\"none\">: There are at least 42 million senior citizens in India with at least Rs 14 trillion deposits who have no hedging (risk management) in case of interest rate declines as we have no comprehensive social security.\u00a0\u00a0<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<h5><b><span data-contrast=\"none\">Way forward<\/span><\/b><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/h5>\n<p><span data-contrast=\"none\">The interest rate component can be adjusted in the case of people who are not solely dependent on interest income.\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n<ul>\n<li data-leveltext=\"\u00b7\" data-font=\"Symbol\" data-listid=\"27\" aria-setsize=\"-1\" data-aria-posinset=\"206\" data-aria-level=\"1\"><span data-contrast=\"none\">For example, alternate financial savings avenues such as equity markets participation are getting popular. But they do not ensure the safety of the principal and are therefore not desirable to the senior citizens.<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<h5><b><span data-contrast=\"none\">Terms to know<\/span><\/b><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/h5>\n<ul>\n<li data-leveltext=\"\u00b7\" data-font=\"Symbol\" data-listid=\"27\" aria-setsize=\"-1\" data-aria-posinset=\"207\" data-aria-level=\"1\"><span data-contrast=\"none\">Accommodative stance of RBI<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"\u00b7\" data-font=\"Symbol\" data-listid=\"27\" aria-setsize=\"-1\" data-aria-posinset=\"208\" data-aria-level=\"1\"><span data-contrast=\"none\">Fiscal policy\u00a0<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<li data-leveltext=\"\u00b7\" data-font=\"Symbol\" data-listid=\"27\" aria-setsize=\"-1\" data-aria-posinset=\"209\" data-aria-level=\"1\"><span data-contrast=\"none\">Liquidity management by RBI<\/span><span data-ccp-props=\"{&quot;134233279&quot;:true,&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><b><span data-contrast=\"none\">Source<\/span><\/b><span data-contrast=\"none\">:\u00a0<\/span><a href=\"https:\/\/www.business-standard.com\/article\/economy-policy\/save-jobs-or-protect-savers-a-new-monetary-policy-dilemma-amid-covid-19-121062300068_1.html\"><span data-contrast=\"none\">Business Standard<\/span><\/a><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}\">\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Context: Should RBI increase the interest rate or continue with its accommodative stance? A new model has also been suggested \u2013 HANK (Heterogenous Agents New Keynesian).\u00a0 Introduction\u00a0 While the world is still debating whether modern monetary theory (MMT), which encourages governments to spend without having any meaningful fiscal constraints, should be the norm, something new&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/save-jobs-or-protect-savers-a-new-monetary-policy-dilemma\/\">Continue reading <span class=\"screen-reader-text\">Save jobs or protect savers? A new monetary policy dilemma<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,8043,9],"tags":[],"class_list":["post-114540","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-current-affairs-cat","category-public","entry"],"jetpack_featured_media_url":"","views":{"total":2,"cached_at":"","cached_date":1700456359},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/114540","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=114540"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/114540\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=114540"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=114540"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=114540"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}