Essays on Central Banks and Monetary Policy Assignment

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The paper "Central Banks and Monetary Policy" is a perfect example of an assignment on macro and microeconomics. Central banks are the government institutions, established and entrusted with financial responsibilities to perform certain functions within the economy. Apart from serving as bankers to the government, a modern central bank provides various services to the commercial banks. It is a banker’ s bank, though basically created to ensure effective control of a country’ s currency (Brown & Yousefi 2010). This implies that the role of central banks has gone through an evolution.

It is evidently pointed out in monetary theory work that the central banks work to minimize the impacts caused by economic fluctuations as well as reduce volatility within the financial system. Therefore, central banks pursue five major objectives so as to ensure that economic and financial stability is achieved. The goals include, price and financial stability, stable real growth, interest rate as well as exchange rate stability. The project examines how the central bank controls the quantity of money supply within the economy in relation to price stability. It also centers on the key roles of the central banks and how they conduct monetary policies with a focus on the United Arab Emirates (UAE) as the case study. Question 1: A brief discussion of the objectives of central banks More functions have been acquired as the central banks evolve into public policy agencies.

However, the main objective of that underlies all the functions of the central bank is geared to the economic interests of a nation which should be consistent with the government's economic policy. One of the main objectives of the central bank is a monetary policy that focuses on achieving price stability.

Monetary policy is a means through which a central bank controls a country’ s supply of money as well as manipulates interest rates to enhance economic stability and growth. Price stability has been considered as the dominant monetary policy objective clearly specified within the legislation. In this case, stability means the domestic purchasing power of a currency. This objective is singular and more superior than other macroeconomic objectives stated in the law. For example, laws that require the central bank to support the government with its general economic policy without necessarily prejudicing to the central bank’ s key objective of promoting price stability.

References

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Hörnle, D., (2008),The Relationship Between the Money Supply and the Inflation Rate and the Role of the European Central Bank in Changing the Money Supply, GRIN Verlag.

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Pringle, R, & Carver, N., (2003), How countries manage reserve assets, in R Pringle and N Carver (eds), How Countries Manage Reserve Assets, Central Banking Publications, London, pp 3-31.

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