Instrument Rules vs Targeting Rules

Instrument Rules vs Targeting Rules Instrument rules vs targeting rules? Should Central Banks commit to a simple instrument rule such as the Taylor Rule? How well does such a rule explain Central Bank behaviour? Do targeting rules provide a more compelling alternative? The Taylor rule has had a wide-reaching effect on the literature surrounding monetary policy design. It is a simple instrument rule which aims to show how interest rates should respond to two economic indicators: Inflation and Output. This simple rule has led to the â€Å"Taylor Principle† which has been said to be useful in guiding policy design. Many studies have been done to determine whether or not the Taylor rule appears to guide monetary policy in many central banks. However there has been a vocal group that criticises the Taylor Rule and instrument rules in general as being inflexible and not allowing for discretionary measures, this has sparked lively debate between the two sides of the debate. This essay will examine the literature surrounding the Taylor Rule and analyse the good and bad aspects of the rule. In addition to this the empirical studies examining the Taylor Rule will be discussed. Furthermore a brief look targeting rules will provide a useful counterpoint to the analysis of instrument rules. Literature surrounding the Taylor Rule Before discussion of the literature surrounding the Taylor Rule can begin it is necessary to define what Central banks aim to achieve with monetary policy. Most agree that inflation targeting is a key concern for central banks with the aim being to keep it at a low and stable level. In addition to this there are concerns for keeping a stable level of output which should aim to keep it at a level around potential output and for general control of monetary aggregates such as money supply. With these objectives in place the Taylor rule can now be examined in how it allows central banks to follow a simple rule to meet its objective. The Taylor rule is a simple instrument rule which shows that interest rates should be determined by the inflation gap and the output gap as shown in this equation: (Walsh, 2003, p.546) The à ¯Ã‚ Ã‚ ¢ and à ¯Ã‚ Ã‚ § coefficients are both >0. This being added to the real interest rates leads to the Taylor principle which states that a deviation from the target rate of inflation should be met with a larger than one to one change in the nominal rate of interest. This is called the â€Å"Taylor Principle† and the empirical literature surrounding central bank behaviour aims to find evidence of the Taylor Principle adhered to by Central Banks. Bernanke (2004) describes the above equation as a simple feedback policy due to the central bank reacting to feedback from the economy on a number of variables that can be estimated at the time and don’t rely on forecasting. As the literature around the Taylor rule has grown so too has the variations of the model which have included both lagged variables and forecasting (Clarinda, et al.) It has also been adapted to provide guidelines for a variety of monetary policy regimes as Orphanides (2007, p.15) has pointed out two examples; one being a money growth regime and the other an inflation targeting regime. The Taylor Rule and the principle which follows on from it serve as a good starting point for monetary policy making due to its simplicity allowing a variety of variations of it to suit a variety of needs and thus serves a useful benchmark. Its simplicity provides a host of other benefits well. Firstly its ability to relate policy to the state of economy by showing how interest rates, inflation and output interact with each other it provides a good guideline for central banks to follow. In addition to if a central bank can commit to such a rule it will provide a baseline for expectations regarding future monetary policy for financial markets and other private agents. There are many criticisms of the Taylor Rule. Svensson (2003) and Woodford (2001) both imply that rules may be too simplistic to carry out the task of dictating monetary policy. Svensson (2003) also argues that it doesn’t contain enough economic variables to be useful. He mentions the exchange rate, terms of trade as well as others which may be of importance to a central bank in a small open economy. Thus he concludes that any policy using Taylor Instrument rules will be sub-optimal (Svensson, 2003, p.442). McCallum and Nelson rebut this by citing two models (Clarida et al. (2000) and McCallum Nelson (1999)) which are open-economy models which don’t require terms other than the interest rate, output and inflation rate. (McCallum Nelson, 2004, p.600) Tschandize et al. (2005) also points out that any recommendation based off of a formula is likely to ignore the judgment policymakers use in light of other developments not captured in the output gap or inflation behaviour. There are also practical problems with the Taylor rule though. Firstly the measures of both output and inflation can have a very different result depending on how they are measured (Yearly or Quarterly Data) and also due to measurement errors. (Orphanides, 2007) This could have a significant effect on parameters and lead to sub optimal policy making. Furthermore when there is deflation the Taylor rule if followed mechanically would demand a negative interest rate which is highly unlikely if not impossible due to the existence of a zero lower bound. Finally say if the inflation target was met and output was at its natural level then the rule dictates we set nominal rates at the real interest rate plus inflation. This presents numerous problems as there is extreme difficulty in measuring what is the natural long run rate of interest due to it being unobservable and having to be obtained implicitly. The Taylor rule is however generally held by all to be a good model considering its limited number of variables and serves as a good starting point for the oft complex task of creating monetary policy. Also if the Taylor rule is indeed followed as a rule many of the criticisms levelled against it are entirely valid, however if seen as a policy guideline rather than an iron clad law it is a lot more flexible and can instead inform policy makers rather than dictate them. Empirical Studies of the Taylor Rule Empirical studies tend to utilise rational expectations of forecasts, especially the model developed by Clarinda et al. this specification of the model is intuitively true as it would be rational to assume that central banks are forward looking in their policymaking due to the time lag between taking action and seeing that action having an effect it is better to take the action now for a forecast. In their study they find that the Taylor Principle held up well and you could accurately describe the policy undertaken by the Fed, Bundesbank and the Bank of Japan in the time frame studied. Clarinda et al go a step further and also include lagged variables of interest, regressions ran on interests rate with the coefficient on lagged inflation is both large and statistically significant implying serial correlation. For example Clarinda et al. find that with the fed two lagged variables of interest rates for the fed is both large and statistically significant. Some argue it implies that the fed is following an interest smoothing policy. This interest smoothing policy is intuitive for a number of reasons, for example central banks also use data from financial markets amongst others when deciding interest rates, and thus an interest smoothing policy would aim to not destabilize these other macroeconomic variables which would not be good for an economy’s wellbeing. This has been referred to as an illusion by Rudebusch (2002). He shows that if the Fed did adopt a gradual policy then it would be predictable but he argues that evidence from forward rates does not support this view. In addition to this Lansing shows econometrically why gradual smoothing appears. If the fed is using real time data to update its trend output each period then when the final data is produced due to the serial correlation between the real time errors will make it appear to be correlated with lagged interest rates. This creates the illusion of interest rate smoothing. More general points of criticism have been raised by many others (Perez(2001) Tschiadize et al. (2005) and Orphanides (2007). Perez (2001) argues argue that if we used real time data available to policymakers at the time we would find that the results do not hold up well and that in the period before the so called great deviation we would see that the Taylor rule was followed in the period of the great inflation (Perez, 2001). Orphanides (2007) argues that many studies have fallen into the trap of using revised ex-post data instead of the data available at the time, this error leads to results which provide no real insight into how decisions were made at the time. This point is also made by Tschandize (2005) Tschadize also points out that the structural change in an economy must be taken into account and thus it would be difficult to impose the same coefficients and targets on of one regime on another without accounting for structural changes. They elaborate by saying that while the structure of the economy may not change attitudes may change which may shift the result of the Taylor Rule equation due to different weights placed on the inflation variance and the output gap, and also a change in targets. Both of these would drastically change In addition to this many papers provide a counterfactual account of what should’ve been done. However with the benefit of hindsight and revised datasets it is very easy to say what should be done. Furthermore a study of this sort is of limited use as it is purely theoretical and is subject to the same limitations outlined above. They mention a 2003 study by Rogoff which shows that the smoothing of inflation may have occurred anyway due to favourable conditions in the macroeconomic environment, primarily globalization which put a downward pressure on prices due to increased competition from abroad so the evidence of Taylor Rules controlling inflation may be overstated. The empirical studies surrounding the Taylor rule have provided great insights into the conduct of monetary policy historically and have given insights into what works and has deepened our understanding of monetary policy. However there are many flaws in many of these studies which limits how many conclusions we can draw from them. Targeting Rules Could targeting rules provide a better alternative to an instrument rule? Svennson has been a strong advocate of targeting rules based on forecasting. One thing to note is that the Taylor rule is explicit whereas the model Svensson advocates is implicit in that inflation and output gaps matter but not because of themselves but in the way they affected the forecast for inflation. This particular model of optimal targeting relies heavily on developments made in consumption theory, Svensson argues that they are superior as they are structural, robust and compact. This model hinges on a very simple Euler Equation. This of course has come under criticism but it is irrefutable that it is compelling in its simplicity and its ability to distil the complexities of policymakers decision making into the very simple form of essentially MRS=MRT. The Euler condition is simply this: Et (Eq. 2 Svensson 2003, p.616) How does this relate to targeting rules? Targeting rules aim to minimise the loss between the marginal rate of substitution (MRS) between inflation and the output gap and the marginal rate of transformation between inflation and output is determined by the aggregate supply (AS) relationship between inflation and unemployment. Svensson (2005) notes that aggregate demand doesn’t determine the marginal rate of transformation (MRT), therefore the model is robust to changes in the AD relationship. This is an intuitive idea as policymakers have a preference over inflation and output just as a consumer has a preference over consumption today or tomorrow. Thus, a decision is made over how much output and inflation, which is dependent on the trade-off between them, which is given by the AS curve. So the principle of MRS=MRT can be applied to monetary policy. This principle is independent of any model and Svennson believes that this should drive a policymaker’s decision making not simply adhering to an instrument rule. Svennson (2005) outlines the central bank’s optimal targeting rule as: (Svensson, 2005, Eq.3) This rule is a structural model of monetary policy, in the same way that AS and AD are structural (and they are designed to capture price-setting and consumption choice respectively). As previously stated this essentially captures the equality MRS=MRT. MRS being given by the central banks preferences between inflation and output with à ¯Ã‚ Ã‚ ¬Ãƒ ¯Ã¢â€š ¬Ã‚  capturing the weight authorities place on output variability. The MRT being given by à ¯Ã‚ Ã‚ ¡x à ¯Ã¢â€š ¬Ã‚ ¬Ãƒ ¯Ã¢â€š ¬Ã‚  which is the slope of the short-run Philips curve which captures the trade-off between inflation and unemployment. Svennson (2005) says it is also robust to shocks and judgement since there is no variable in the rule to capture this. Finally he states that targeting rules are superior to instrument rules as they are more compact. This means that they can explain the same amount with less variables which can only be a good thing as it should lead to less errors. McCallum and Nelson (2004) argue that targeting rules are specific to a particular model. As they rely on assumptions of the dynamics of the models IS and Phillips curves amongst other structural equations. (2004, p.599) They criticise them as although they are optimal for a particular model they may well not be optimal in another model. In contrast they argue that instrument rules can be defined outside particular models and can be tested in other models, and that the best instrument rule over the range of models can be selected. They provide numerical examples in which the optimal rule in one model can give results in other models that are more than twice as bad as the optimum for that model (2004, p.599) They then run some simulations and conclude that there is little difference between the performance of instrument and targeting rules when a mistake is made regarding economic conditions. They argue that targeting rules are not superior to instrument rules in this respect. Svensson (2005) counters that if the error is not immediately realised, instrument rules can perform very badly. He also points out that whereas targeting rules are by definition optimal, varying the response coefficient in instrument rules finitely (rather than infinitely) can on some occasions only get close to optimality Targeting rules provide a good alternative to instrument rules and provide many benefits over instrument rules as shown above. That is not to say that it isn’t without its flaws but it does appear to more accurately model the behaviour of central banks as Conclusion Taylor rules and more generally instrument rules have been the focus of a great deal of economic research. The idea of a simple policy rule is an enticing one as it would be easy to commit to and would allow for an easy understanding of monetary policy. However the main issue is its simplicity as has been pointed out by many, central banks rely on all sorts of data when making monetary policy decisions. This thought process cannot be hoped to be captured in a simple instrument rule. It has found some success in empirical studies however with many showing that there is evidence of central banks making use of the Taylor rule and Principle but these findings should be taken with a pinch of salt as there are of course no certainties that central banks strictly followed a Taylor rule and also many critics have discredited some of the findings. However the results are still impressive considering the model has performed admirably in the years after it was first published in 1993 and still provides a compelling idea as to how monetary policy should be conducted and provides a reasonable explanation of central bank actions over the years. The development of optimal targeting rules has led to a compelling alternative to proposed instrument rules with its simplicity and strong micro foundations providing a model that holds up well to analysis. Indeed it is superior to instruments in a variety of ways due to its implicit nature and in the way it captures the principle that monetary policy is a case of getting MRS=MRT which is independent of any model and it leaves more scope for judgement to be used in how best to achieve this equilibrium. Of course it is not without its flaws such as its specificity to certain models and its inability to be used in other models. Unlike an instrument rule which is easy to apply and examine in a variety of models and the best rule can be selected. So the debate will continue and instrument rules and in particular the Taylor Rule are still relevant in the debate over the best way to conduct monetary policy due to its simplicity and it will serve as a useful guide for policymakers in the fu ture but the development of optimal targeting rules does provides a compelling alternative which is in my opinion a better model of monetary policy than any instrument rules as it more accurately captures the decisions facing policymakers due to its simplicity.

The Peaceful Cemetery Essay -- Descriptive Essay Examples, Observation

The Peaceful Cemetery    As we enter a cemetery, we might be filled with fear. We may think of dark nights and ended lives. What is a scary and dreadful place is a very meaningful place for me. This place is so meaningful to me because my grandparents on my father's side are buried there. Cemeteries are important to bringing perspective and serenity, because they bring us a connection to where we came from, help us realize the delicacy of life, and they help us to relax a little bit through their calmness. I have had so many things impact my life and they all seem to end up in the same place. Cemeteries are not the dreaded and scary things of superstitions. They are holding places for memories and faith.    My memories of Linwood cemetery are not from within the place itself but from the people it holds. It helped me realize the delicacy of life by taking many people I loved before I expected. My grandparents are buried in my most meaningful place and one of my friends from high school. My grandparents are very special because I never really had the chance to meet...

Nature of Dreaming

The dreaming is the centre of the Aboriginal culture which everything relates back to, the creation of people, animals, water and land. The Dreaming for Aboriginals is, ‘the past, the present and the future’. 1. Outline the nature of the Dreaming- its stories, symbolism and art. Outline means to sketch in general terms, indicate the main features of. Aboriginal people tell the stories of the land and how it came to be with all its living creatures through expression of song, dance, painting and storytelling. The Aboriginal Dreaming is set into multiple layers from the simplest first layer which anyone can access and understand to the second layer onward where the concepts are more complicated and a person must have a relationship to the Aboriginal people or culture to understand. The last couples of layers are only for initiated Aboriginals and Aboriginal elders and are very sacred and secret from anyone and everyone else. Aboriginal Dreaming stories are depicted in the numerous artworks done using various techniques and coloured natural paints. Behind every painting there is hidden symbolism and every little shape, line and colour relates to some form of the Aboriginal life. The painting Sugarleaf at Ngarlu is an excellent example of hidden symbolism using shapes to create meaning such as camp sites, women dancing, footprints, ceremonial poles and women gathering socially. The stories of the dreaming are important as it is passed from generation to generation by the elders about the different experiences, lessons and Gods and spirits. Painting was the main way of expressing stories from ancestors specifically on rocks, utensils, weapons and as body art. Rock art has given evidence of human presence in Australia for over 30000 years. In the present day and in the past, body paintings have been used to show social position, relationship to their family, ancestors and to a person’s totem. Reference http://www.aboriginalartonline.com/art/art.php

The Man Who Brought Geometry to the World

The Man Who Brought Geometry to the World Much of our modern science, and astronomy in particular, has roots in the ancient world. In particular, the Greek philosophers studied the cosmos and tried to use the language of mathematics to explain everything. The Greek philosopher Thales was one such man. He was born around 624 BCE, and while some believe his lineage was Phoenician, most consider him to be Milesian (Miletus was in Asia Minor, now modern Turkey) and he came from a distinguished family. It is difficult to write about Thales, since none of his own writing survives. He was known to be a prolific writer, but as with so many documents from the ancient world, his vanished through the ages. He is mentioned in other peoples works  and seems to have been quite well-known for his time among fellow philsophers and writers. Thales was an engineer, scientist, mathematician, and a philosopher interested in nature. He may have been the teacher of Anaximander (611 BC - 545 BCE), another philosopher. Some researchers think Thales wrote a book on navigation, but there is little evidence of such a tome. In fact, if he wrote any works at all, they did not even survive until the time of Aristotle (384 BCE- 322 BCE). Even though the existence of his book is debatable, it turns out that Thales probably did define the constellation Ursa Minor. Seven Sages Despite the fact that much of what is known about Thales is mostly hearsay, he was definitely well-respected in ancient Greece. He was  the only philosopher before Socrates to be counted among the Seven Sages. These were  philosophers in the 6th century BCE who were  statesmen and law-givers, and in Thaless case, a natural philosopher (scientist).   There are reports that Thales predicted an eclipse of the Sun in 585 BCE. While the 19-year cycle for lunar eclipses was well known by this time, solar eclipses were harder to predict, since they were visible from different locations on Earth and people were not aware of the orbital motions of the Sun, Moon, and Earth that contributed to solar eclipses. Most likely, if he did make such a prediction, it was a lucky guess based on experience saying that another eclipse was due. After the eclipse on 28 May, 585 BCE, Herodotus wrote, Day was all of a sudden changed into night. This event had been foretold by Thales, the Milesian, who forewarned the Ionians of it, fixing for it the very year in which it took place. The Medes and Lydians, when they observed the change, ceased fighting, and were alike anxious to have terms of peace agreed on. Impressive, but Human Thales is often credited with some impressive work with geometry. It is said he determined the heights of pyramids by measuring their shadows and could deduce the distances of ships from a vantage point onshore. How much of our knowledge of Thales is accurate is anyones guess. Most of what we know is due to Aristotle who wrote in his Metaphysics: Thales of Miletus taught that all things are water. Apparently Thales believed the Earth floated in water and everything came from water. Like the absent-minded professor stereotype still popular today, Thales has been described in both glowing and derogatory tales. One story, told by Aristotle, says Thales used his skills to predict that the next seasons olive crop would be bountiful. He then purchased all the olive presses and made a fortune when the prediction came true. Plato, on the other hand, told a story of how one night Thales was gazing at the sky as he walked and fell into a ditch. There was a pretty servant girl nearby who came to his rescue, who then said to him How do you expect to understand what is going on up in the sky if you do not even see what is at your feet? Thales died about 547 BCE in in his home of Miletus. Edited and updated by  Carolyn Collins Petersen.

8 Basic Resume Rules for College Students

8 Basic Resume Rules for College Students Back in the day, you could put on your nicest outfit, walk down to a local office, shake hands with the CEO and land a job based on just your charisma and charm. Now, as organizations outsource their hiring to HR representatives and recruiters, your resume is the first (and last) impression that you ever get. No matter your skills or experience, a poorly framed resume can keep you from a career you deserve. For this reason, it can be a good idea to apply to a professional writing service for help. But first, you should get acquainted with the best tips for getting past the invisible barriers that keep out unwanted applicants and launch you into the hiring pool. Plain and Simple A hiring manager or HR doesn’t have time to deal with weird fonts, colored paper, or overly-fancy explanations. They want a resume that is simple to read and will take them little time to evaluate. And, some employers will automatically bump any resume that uses language or visual characteristics that they don’t deem professional. For example, using slang or writing your resume completely in Comic Sans font is a great way to get your resume chucked before anyone even has a chance to read it. Consistent Organization It’s important to set up your resume so that each section uses the same organizational structure to make it easy to read. For example, if you start by listing the years you worked at a particular location followed by the job duties you performed, you would want to keep that structure for your extracurricular activities, education, etc. To better understand the structure of a resume, you might need to read our step-by-step guide for writing a resume. Avoid the Objective – Stick to a Summary Some resume classes explain that having a resume objective at the top is a good idea – so that people know what you’re looking for. The problem is, no one cares. Instead of writing an objective for yourself, use the top section of your resume to write a summary – a couple of lines about why someone should hire you instead of another person. In addition, avoid using the pronoun â€Å"I† in your resume. Instead, use active verbs to express what you can do. Objective: I am seeking employment at a fast food restaurant to support my final year of college. Summary: Outgoing people person who loves to improve the customer buying experience. Dealing with Blank Experience Section If you are getting ready to look for your first job, you might be concerned with the lack of experience that you have. Don’t worry. Instead, use your creative writing skills to summarize some of the experience and skills that you bring to a potential employer. Often, you can find these skills in the ad you’re responding to, with frequently used words like, â€Å"organized,† â€Å"dependable,† â€Å"customer-oriented,† etc. In addition, avoid using work experience that doesn’t relate to the job you’re applying for. Example: Organizational Skills Able to quickly identify and organize an area so that workflow is more efficient. Participated in setting up and managing schedules for 5-10 people. Visual Space Remember: no one wants to read a huge block of text. Break down your resume into sections and bulleted subsections. That will make it easier for the HR representative to read and makes you look much more organized than the competition. Work Only Sometimes new applicants forget that their entire goal is to get a job, not get more Twitter followers. It’s important that everything on your resume directly relates to the position you’re applying for. That means don’t put links to your blog page or mention your skill of being able to touch your tongue to your nose. Unless you’re applying for a job as a circus nose-licker, it’s not likely to be considered very professional. Use Buzz Words Depending on your dream job’s requirements, there may be buzzwords that are necessary to get you past the computer filters that are keeping out the wrong applicants. Consider the job you are applying for and the ideal candidate for the job. If there are attributes or concepts that have been emphasized, find a way to include those words in your resume. Ad text: The perfect applicant for this job will be attentive to detail, organized, and able to meet a deadline. Resume text: Quick-thinking accountant who loves deadlines and detail. My desk is exactly like my calculations – organized and clean. Read it Out Once your resume is finished, you need to get it proofread by someone other than spellcheck. Share it with a friend, family member, or professional proofreader. They will be much more likely to catch mistakes and suggest areas that are in need of improvement. If you dont have any idea on how to write a resume with no job experience, check our guide for students now!

Business cycles, indicators, measures, economic evolution,outlooks Essay

Business cycles, indicators, measures, economic evolution,outlooks - Essay Example This decision came at a period when David A. Hoyt aged 58 to a step to retirement after a long-term working relation with wells Fargo as the head of wholesale banking. In a written statement the Company’s CEO, John Stumpf this reshuffles are aimed at pointing out the unique variety of high profile leaders in the organization and the value addition brought about by assigning them to head new posts. Sloan is expected to carry on his duties as the chief financial officer until the monthly report of the banks’ earnings are released. In his new assigned role Mr. Sloan will report directly to the CEO and be actively engaged in the company’s board committees. Sloan previously served as head of wholesale banking, commercial real estate and specialized financial services unit. The wholesale banking has proved to be a success bringing in 37percent of the banks net income. The economic principle applied in the event the Organization appoints a new Chief Financial officer is the principle that people respond to incentives.Whereby the reshuffles that are under taken in the organization are aimed towards motivating other heads to feel equal to new positions. The principle of increment in the profits indicates that such business ventures are of great assistance to others is also in application whereby through wells Fargo assistance to other wide range middle market commercial lending and international banking institutions. This has resulted in at profit margin of 37% to wells Fargo net income in the fourth quarter (Marshall, 315). The economic principle of people acting so as to achieve their set goals is also in application in the wells Fargo event. Where through chairing the wells FargoFinancial office for a period of four years and being able to achieve the profit margin for the company the decision of retirement is a rational act since various people choose

Information Security and Ethics Essay Example | Topics and Well Written Essays - 1000 words

Information Security and Ethics - Essay Example Professional ethics plays crucial role in helping information security professional to execute their duty. However, to ensure maximum information security, organizations need to institute relevant legislations to guard against information security breach. This paper explores policies and procedure that organizations should implement to secure their confidential information. It is crucial that security forms an integral part of organizational culture. Protecting the firm from possible information security breach should be a major focus of the company’s operational process. To achieve this, security policies or e-policies provide the fundamental framework for an organization to beef security over its crucial information. Security policies are regulations that outline how organizational information are supposed to be used in executing daily organizational tasks and also dictate who is authorized to access what information. What Are Security Policies or e-policies? A security poli cy can be referred to as a document that gives guidelines on how an organization intends to protect its physical as well as information technology assets. According to Ciampa (2010), a security policy refers to â€Å"a document that outlines the protections that should be enacted to ensure the organization’s assets face minimal risks.†An organization’s security policy is usually referred to as a living document because it is continuously upgraded to meet emerging organizational challenges in the face of organizational change and evolving employee requirements. The security policy of an organization usually reflects on policy implementation requirements and possible corrections in case loopholes are detected (Ciampa, 2010). Recommended Information Security Policies for Organizations Control over Access to Computer Rooms In order to ensure high level security for crucial organizational information, computer rooms should be kept under lock and key at all times. Com puter rooms should have doors fitted strongly and manned by security officers at all times. In addition to locking computer rooms, there should be security officers deployed to man the doors to main information areas. Only authorized personnel should access such rooms through user authentication process. Use of Passwords and Authentication Procedures The organization should have documented guidelines to control access over its crucial information areas. All computers in the organization should have passwords in relation to security demands. These guidelines need to be assessed on regular intervals. The guidelines should have password requirement and control the storage of such passwords. All users of information accessing information system of the company must be authenticated. Individuals who are authorized to access company information should have unique blend of usernames and passwords to bar unauthorized personnel or external intruders from gaining easy access to the organizatio n’s private information. Information users are held responsible for the usage of their passwords and usernames, which they should keep secret unless called upon by the chief security officer to disclose such passwords and usernames. Data Encryption Policy The second policy that an organization can establish to protect its valuable information is data encryption. In recent times, there have been numerous