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Central Banks & Monetary Policy - Research Paper Example

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Price stability dominates the objective of monetary policy that is made specific in legislation. The stability of currency purchasing power is dominating legal objective. In most situations, it is always superior to other objectives…
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Central Banks & Monetary Policy
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Download file to see previous pages If compared to a case where objectives included both dimensions of public policy and commercial, such statement significantly increased the clearness of the direction given to bankers with central banks. There was an identity of logic of purpose. They were mandated with the role of discharging their functions in a way that is related to the interest of the public, considering state agencies’ functions and coordinating them. It is to the degree that the interest of the public could be provided by the addition of functions not assigned to the better (Callaghan, 2009). Hence, most central banks started to assume roles for financial sector’s development; payment system oversight and money operation, foreign exchange, capital market and debt oversight. From the present objective, such an interest objective exposes itself to understanding and provides directions on what is to be done when views or functions as to nation’s interest. It is only in the recent past that attention has been awarded to objectives identification for function of individual and to objectives potential to conflict. Specifying objective trends have emerged, but functions of many banks are not directed by legal objectives. Objectives of Monetary Policy Price stability dominates the objective of monetary policy that is made specific in legislation. The stability of currency purchasing power is dominating legal objective. In most situations, it is always superior to other objectives. In contrary, if stability of price is not specific, the legally specified objectives tend to be general. In fact, if the stability of price is not stated specifically as a goal, then there is no objective that legally dominates, and instead definition of value of currency is used (Cecchetti, 2011). There are conflicts which arise if various actions of monetary policies are driven by various objectives. For instance, objectives that regard stability of price and variables of the real economy are concerned with such conflicts. Secondly, is about rate of exchange regimes- local stability of price and stability in the exchange rate requires adjustment of interest rates in directly opposite positions. The conflicts raise interpretation issues of objectives that are legal where both currency and price stability are specific as objectives of monetary policy. If the stability in price would be equal to stability in currency, then conflict potential would be solved. Other ways of solving potential conflicts are; making sure that precedence orders are among objectives, recognition of lower levels to be in a position to clarify and interpret legislation’s higher level, use of extra-statutory agreement, which provide law interpretation on which the central bank agree, and lastly, taking into accountability the technical feasibility. Objectives Financial Stability Most of central banks presume that financial stability has policy responsibility. In a few situations where the central bank is faced with legal objective that is explicit for stability in finance, objective is of a wide range and the responsibility of central banks far reaching. However, in other situations where there are well set objectives for functions of financial stability, the language’s implication is an extent of results responsibility, with these banks charged with stable, safe or sound system of finance. Making a financial stability specific entails confrontation of issues discussed relating them to objectives of monetary policy. It is not an objective that is absolute- financial stability is always flexible. The extent is what varies. There is no ...Download file to see next pagesRead More
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