Introduction
The goal of the current research is to focus on the role of central banks and the effectiveness of monetary policies. However, the objectives of the research are two concerns on the role of central banks in an economy; there is also a focus on the evaluation regarding the effectiveness of the monetary policies. Regarding the role of monetary policy and central banks, it is concerned that these policies can be used to ensure economically. However, for financial stability, there is a need to conduct monetary policy so that the nation or country can achieve low and stable inflation and there could be secured from the global financial crisis. In Keynesian economics, also known as the macroeconomic theories, there is a focus on the short run approaches especially during a recession. Thus, central banks have expanded their toolkits so that through using monetary policy there could be effective in the economy and so that banks could effectively deal with risks (Schularick & Taylor, 2012).
Effectiveness in Financial Stability
For the benefits in the economy and to get effectiveness in financial stability, the monetary policy is adopted by central banks. To manage volatile exchange rates, the central banks make use of clear policy frameworks so that there could be the achievement of the central bank objectives. For the effectiveness of the central bank’s policies, there are also IMF support for the countries around the world. In recent years the increase in the monetary policies by the large central banks can be seen as the Fed has made more than six rate hikes to follow the policy. The effectiveness of the monetary policies is considered, and thus, there is an increase in the implementation. From December 2013 to August 2018 there is an increase in the adoption of policies, which can be seen by 6% (Becker & Milliman, 2018).
Source: (Becker & Milliman, 2018)
IMF support is given through providing policy advice as well as technical assistance. These central banks conduct monetary policy to achieve price stability as well as to manage economic fluctuations. The monetary policy framework focuses by the central banks so that there may not be issues in the management of the inflation rate. It is analyzed that in the late 1980s; inflation was targeting various countries in this way; the central banks of the countries have developed the leading framework based on the monetary policy so that there could be an explicit inflation target. Lower-income countries are also targeting the monetary policy framework. However, central banks conduct monetary policy to adjust, the better supply of money as well as to effectively operate the market operations.
There is a focus to increase the money supply through the process known as “monetary easing” so that economies can be saved from the global financial crisis. In the advanced economies, the central banks are reducing interest rates to achieve inflation targets. Central banks use monetary policy to increase real wages through a focus on the increase in the size of the investment. The use of monetary policy is also helpful for the country as it could maintain from the great recession. The use of monetary policy is helpful to save the economy from the issues related to the sub-prime mortgage crisis. The expansionary monetary policy has the focus or intentions to reduce the general price level. National banks have extended their toolboxes so that through utilizing the financial arrangement there could be viable in the economy, thus that banks could adequately manage the dangers (Blanchard & Gali, 2010).
Fight for the Next Recession
It is analyzed in the article that there is the need to fight for the next recession. Through focusing on the fiscal stimulus, the monetary policies need to be considered as these strategies are ideal. The best budget needs to be decided on the monetary policies by the managers of the benefits in the booming economy. Monetary policies if effectively implemented by the central banks then there could be critical investments; it is a recession-fighting tool that provides the adequacy of the national bank’s approaches, there is likewise the IMF underpins for the nations around the globe. Through implementing this policy, there is a better response for the financial specialists as there will be a favor for money related arrangement over the monetary approach in light of the fact; it will also boost risk-taking (The Economist, 2017).
In the American economy through a focus on the monetary policy there is the increase in the size of the investment, and thus, the American economy is getting various benefits. The Federal Reserve in the countries is changing monetary policy so that there could be preferences for the use of monetary policies. In the developed economies, neo-classical economics is concerned for the better role of central banks in an economy, to satisfy the major economic goals; polices are given values and evaluation is done for the effectiveness of the monetary policies (Blinder, 2010).
To lower down the recession and deflationary trends, capitalist economies are favored because it can be helpful in the period of boom. The current research paper focuses on analyzing the relationship that is between monetary policy and central banks; however, the policy is focused on the order to cause full-employment as well as high-inflation. The central bank focuses on bringing inflation at the desired level through implementing the policies of the central banks. The majority of economists preferred monetary policy over fiscal policy because there are concerns related to purchasing power intact. Monetary policy does not have the large size of risks; therefore, monetary policies are more favorable in the majority of economists (The Economist, 2017).
The study focuses on the major lessons regarding the monetary policy and central banks; the study analyzed that economy when faced the financial crisis and uncertainty; the liquidity focused by the banks to maintain the efficiency of the interbank lending market. However, it is concerned that central banks took steps for allocating funds through using the monetary policy and optimal policy. Banks can also get adequacy in the money related solidness the fiscal arrangement is received by national banks (Gambacorta, Hofmann, & Peersman, 2014).
Maintain the Liquidity Shocks
The research examines the relationship between the money related approach and central bank; that to maintain the liquidity shocks; as well as the liquidity-shock crisis the bank effectively considered the large disparity in the liquidity, and there was the focus on the prudential regulation and monetary policy, etc. Moreover, to maintain the aggregate liquidity crisis in the central banks, the banks are managing the volume of liquidity through considering effective policies and through maintaining the interest rates by monetary policy. Monetary policy is concerned as the liquidity injection that could help to increase the probability and also help to manage the macroeconomic effects. For the maintenance of the global financial crisis in the economic activities, monetary policies are settled by the economies (Freixas, Martin, & Skeie, 2011).
The study focuses on the functional roles of the central banks and monetary policy that how central banks maintain price stability and financial stability. It has discussed in the study that through a focus on the financing needs the monetary policies are supporting the inflation tax rate and lead fiscal approach with a specific end goal to change the better supply of cash and additionally to successfully work the market tasks. Through the monetary role of central banks, there is the specific end goal to oversee unstable trade rates; the national banks make utilization of clear approach structures so that there could be the accomplishment of the national bank destinations. Moreover, there is also focused attention on money and credit fluctuations (Goodhart, 2011).
The American economy is getting different advantages through implementing policies and through utilization of money related arrangement is likewise useful for the nation as it could keep up from the immense retreat and safe economy from the financial crises. The research analyzes that in the years 1870-2008; there were financial crises, and through the implementation of the central policies and policy responses the behavior of money improved, and nations get the benefits. It is concerned that through macroeconomic indicators the financial crisis episodes get leverage in the financial and there was an effective response to financial crises. The policymakers focus on the regulatory ease and credit system by making policies. Moreover, the monetary aggregates and there are major developed economies through marinating the stable relationship of the monetary policies in the financial system. The negative economic effects were also reduced through the financial crises (Schularick & Taylor, 2012).
Conclusion
It can be concluded through researching that monetary policy should be emphasized as it could be helpful in achieving the inflation targets and to increase real wages, however, not in the long run. Moreover, the use of monetary policy of the central banks can also increase the size of investment in the American economy. With the management of the role of central banks; there can be job, money related arrangement and national banks it is noticed that these approaches can be utilized keeping in mind the end goal to guarantee financial matters.
References
Becker, J., & Milliman, D. C. (2018, September 10). Central Bank Balance Sheets and Policy Rates (%). Retrieved from https://www.advisorperspectives.com/commentaries/2018/09/10/central-bank-balance-sheets-and-policy-rates
Blanchard, O., & Gali, J. (2010). Labor markets and monetary policy: A New Keynesian model with unemployment. American economic journal: macroeconomics, 2(2), 1-30.
Blinder, A. S. (2010). How central should the central bank be? Journal of Economic Literature, 48(1), 123-133.
Freixas, X., Martin, A., & Skeie, D. (2011). Bank liquidity, interbank markets, and monetary policy. The Review of Financial Studies, 24(8), 2656-2692.
Gambacorta, L., Hofmann, B., & Peersman, G. (2014). The effectiveness of unconventional monetary policy at the zero lower bound: A cross‐country analysis. Journal of Money, Credit and Banking, 46(4), 615-642.
Goodhart, C. A. (2011). The changing role of central banks. Financial History Review, 18(2), 135-154.
Schularick, M., & Taylor, A. M. (2012). Credit booms gone bust: Monetary policy, leverage cycles, and financial crises, 1870-2008. American Economic Review, 102(2), 1029-1061.
The Economist. (2017, September 7). Governments need to rethink their attitudes to debt. Retrieved from https://www.economist.com/finance-and-economics/2017/09/07/governments-need-to-rethink-their-attitudes-to-debt
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