EC Central Banking

Goals of monetary policy

1. Price stability and nominal anchor (a tool that helps maintain price stability)

2. High employment or low unemployement

3. Economic growth 

4. Stability of the financial market 

5. Interest rate stability 

6. Stability in foreign exchange markets 

Should the Central bank be independent? 

Case for Independence

YES:

• Politicians can print too much money, causing inflation

• Does not play politics so people will trust it more

• Stops prices from going up too much

• Prevents election tricks 

• Avoid big money problem

• Lets experts decide

Should the Central bank be independent? 

Case against Independence

NO:

• Undemocratic, meaning the central bank will make decisions without answering to people 

• Unaccountable, don’t have to explain their decisions 

• Hard to coordinate, struggle with gov to balance money

• Not always effective 

FOMC

Federal Open Market Committee, meets 8 times and has 7 members

What is monetary policy?

The process where a central bank, like the Federal Reserve, controls the supply of money and interest rates that influence the economy. The goal is to achieve economic growth, low unemployment and controlled inflation.

Hierarchy mandates

Main goal is price stability, other goals like employment and economic growth are pursued only after stable prices are achieved.

Dual mandates

Aim for both price stability and maximum employment, treating them equally important goals.

Should price stability be the primary goal of the monetary poliy?

Price stability is the MAIN goal and should be maintained over long term, short term adjustments may be necessary to ensure stability but long term stability is KEY!