Monetary Policy Stance : Hawkish, Dovish or Neutral?

Stance of Monetary Policy

Monetary policy stance refers whether it is aimed at controlling the increase in aggregate demand of the economy by controlling credit and interest rate or it aims at increasing aggregate demand of the economy thereby supporting economic growth. As such, monetary policy stance can be divided into three types :

1. Expansionary Stance : It aims at increasing aggregate demand of the economy by reducing interest rate and increasing the availability of credit. It is also called accomodative monetary policy, loose stance or simply  Monetary Easing. In more technical jargon, it is also called Dovish Stance of monetary policy. The main purpose is to boost of economic activities thereby supporting growth and employment. Such stance is usually appropriate when the economy is less than fully employed or the economy is in recession.
2. Contractionary Stance : It aims at controlling aggregate demand of the economy by increasing interest rate and reducing the availability of credit. It is also called tight stance of monetary policy or simply monetary tightening. In more technical jargon, it is also called Hawkish Stance of monetary policy. The main purpose is to control the overheating of the economy. Such stance is usually appropriate when the economy is overheating i.e. when high inflationary pressures exist in the economy.
3. Balanced Stance : It is also called cautious or balanced stance in the sense that it loosens or tightens monetary policy as per the need of the economy. Its aim is to support economic activities while controlling inflationary pressure.Some central bankers call it neutral stance.