HOW TO BRING MONEY BACK INTO MONETARY POLICY IN SERBIA?

Original scientific paper
Autor: Prof. Miroljub Labus PhD

Summary: How should monetary policy in Serbia react to the second wave of the current crisis? This paper calls for monetary easing by reducing mandatory foreign currency reserve requirements. Contrary to widespread doubts, this is compatible with inflation targeting regime and the associated policy of inflation control under reasonable conditions. Standard DSGE model, which is the analytical basis of both this paper and the NBS’s model, with suitable modifications, indicates that a one-off decrease of required reserves would result in a higher GDP growth rate, along with reduction of inflation rate to the target level over the period of eight quarters. The effect of downward adjusted mandatory reserves would be similar to a positive shock in aggregate demand. That would be a useful policy in the situation when another wave of recession threatens.

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