The extent to which a Central Bank should have both goal and instrument independence and examine the possible implication of this on achievement of the macro-economic objectives.
Date Submitted: 09/10/2006 03:18:53
Category: / Social Sciences / Controversial Issues
Length: 8 pages (2142 words)
Category: / Social Sciences / Controversial Issues
Length: 8 pages (2142 words)
In this essay I will investigate to what extent a Central Bank should have both goal and instrument independence followed by an examination of the possible implications this could have on the macro-economic objectives. A Central Bank has several functions; these include the issue of national currency, to act as banker to both government and private banks, and to oversee the financial system. Central Banks also administer national monetary policy, using their influence over the …
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…should have instrument independence but not goal independence. The basic argument is that in a democratic country, the Central Bank should also be accountable to the people. Therefore, politicians who are the representatives of the people should have some say in laying out the goals of policy, but enough freedom must be given to the Central Bank to allow them to attain those goals and also to ensure good long run performance of the economy.
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