Discuss how central banks typically use indirect instruments to implement monetary policy and why these instruments are generally preferred to direct controls. Further consider an economy that is in a recession. Discuss how policy makers should adjust the monetary policy stance (the main policy rate) and what factors they should consider in the process of reaching their final objectives. Should the Central Bank adopt a negative interest rate policy? What aspects should policy makers consider in deciding whether to use such a policy?

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Central banks typically use indirect instruments such as the setting of interest rates to implement ... View the full answer