Loose monetary policy

I have read on schweser that a loose monetary policy, will result in a small reduction in real interest and a large increase in inflation expectation which will raise interest rates and reduce bond prices.

My question, I have always think that a loose monetary policy will lower interest rates.

I completely agree with what I read on schweser. To have a solid concept on it my question is that the FED actions to either loose or tight monetary policy affect nominal or real interest rates?

Thanks in advance.

My understanding is that monetary policy typically impacts the short end of the yield curve while fiscal policy impacts the long end. This makes sense as central banks historically controlled the (we won’t expand on current unconventional methods) controls short term rates and governmental fiscal policies impact longer term growth expectations which in turn impact the long end of the curve. Best policy and curve discussion I found out there is quoted below. Here’s the link: http://www.analystforum.com/forums/cfa-forums/cfa-level-iii-forum/9992884

More related and unrelated helpful content here => http://www.analystforum.com/forums/cfa-forums/cfa-level-iii-forum/91345342

i find the concept easy to understand, and I think rote memorisation is not needed.

to inject liquidity, the central bank will buy bonds and use printed money to pay for them. this drives up demand for bonds, therefore prices, and therefore reduces yields.

intervention is usually at the short end.

at the long end the printed money worries investors and a premium is demanded for the reduced real TVM. so prices drop, yields rise.

more interesting is the interation of taxation (fiscal policy) and international effects, capital controls etc - this will be tested. I doubt there will be any pure monetary questions, schweser is feeding you candy bars.

Thakns everyone! It did help a lot! Totally worth it getting into the FINS example.

I have the same question, but I can’t find the answer in this topic nor the in the repply of GothamSenator. I don’t know if rodra333 he had the answer.

I resume the question of rodra333.

Suppose we are under expansionary monetary policy, the central bank injects money into the economy. The evident consequence is : the expectation of inflation rate increases. Now, If the monetary policy affects only the real short term interest rate, the nominal short term interest rate may increase (because of increase of inflation). If the monetary policy affects the nominal short term interest rate, both real and nominal short term interest rate will decreases.

The question is: loose monetary policy affects only the real interest rate or it affects either nominal and real interest rates?

Did you guys figure this out. I feel like this has to do with the fact that in macroeconomic textbooks they are talking about long-term and short-term implications of the monetary and fiscal policies separately (sticky prices in the short-term, and fixed output in the long-term). However the CFA does not make such distinction which creates hell of a confusion for me personally. Persistently loose fiscal and monetary policies shall result in high inflation and high real rates - which what I expect to happen IN US for more than five years now.