Central banks and Monetary policy

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(Central Banks)



The Roles of Central Banks
1.

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7.

The Goals of Central Banking

Full employment of resources
A stable price level and FX rate
Sustained economic growth
A stable balance-of-payments position

The Channels
Through Which Central Banks Work
Cost & availability of
credit
Size & growth
of the money supply

Market
interest
rates

Policy
tools
of the
central
bank

Level &
growth
of
reserves
in the
banking
system

Market value
of the publics security
holdings

Currency exchange
rates

Public expectations
regarding security
prices, interest rates,
currency prices,
money supply & credit
availability

Volume & growth

of borrowing &
spending
by the public on
domestic & foreign
consumer & capital
goods & services
Economic goals:
Full employment
A stable price level
Sustainable
economic growth
A stable balance-ofpayments position
6

(price level stability)

Reserve Requirement:

Discount Rate/Discount Window:

(credit rules)

(the open market)

Selective Credit Controls:

Open-Market Operations:

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Official interest rate

Expectations

Bank and market

interest rate

Money and credit

Asset prices

Wage and price setting

Exchange rate

Goods supply & demand and

labour markets

Domestic price

Import price

Price development

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page 16)

page 15)

page 10-13)

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