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Financial Theory and Central Bank Policies

In: Monetary Theory and Monetary Policy

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  • Marvin Goodfriend

Abstract

Central banking lies at the heart of macroeconomic policy analysis. The management of high-powered money by central banks dominates the stochastic behaviour of the price level, inflation and nominal interest rates. Moreover, monetary policy is the primary means by which governments attempt to stabilise employment and output fluctuations. But a central bank is more than the national monetary authority. It is also the custodian of the national banking system. In this latter capacity central banks behave as financial intermediaries, providing emergency credit assistance to individual institutions. They also stand ready to provide last-resort lending in the event of system-wide financial crises. Even routine nominal interest rate smoothing by central banks is pursued in large part because of the belief that it stabilises financial markets.

Suggested Citation

  • Marvin Goodfriend, 1993. "Financial Theory and Central Bank Policies," Palgrave Macmillan Books, in: Stephen F. Frowen (ed.), Monetary Theory and Monetary Policy, chapter 5, pages 100-118, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-23096-9_8
    DOI: 10.1007/978-1-349-23096-9_8
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    Cited by:

    1. Jamshidi, A., 2000. "The Financial System and Monetary Policy in the Islamic Republic of Iran," Other publications TiSEM 743c8f2b-8a0d-4580-8cc7-6, Tilburg University, School of Economics and Management.

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