Quote: "Monetary policy is the policy adopted by the monetary authority of a nation to affect monetary and other financial conditions to accomplish broader objectives like high employment and price stability..."
Explanation of the importance of policy coordination between central banks and governments to achieve economic stability.
Central banks: The institutions that are responsible for implementing monetary policy in various countries.
Inflation: The rate at which the general price level of goods and services in an economy is increasing.
Fiscal policy: The government's decisions regarding spending and taxing that influence the economy.
Interest rates: The cost of borrowing money from a lender or the rate that a lender earns after lending money to a borrower.
Money supply: The amount of money available in an economy, including physical currency and electronic funds.
Exchange rate: The value of one currency in terms of another currency.
Market equilibrium: The point in a market where supply and demand meet and intersect.
Open market operations: The buying and selling of government bonds by central banks to influence the money supply and interest rates.
Reserve requirement: The amount of cash that banks must keep on hand or with the central bank.
Quantitative easing: A monetary policy whereby the central bank buys financial assets to increase the money supply and stimulate economic activity.
Target rate: The specific interest rate that the central bank aims to achieve through its monetary policy.
Unemployment: The percentage of individuals in the workforce who are currently without jobs.
Yield curve: The graphical representation of the relationship between interest rates and maturity on a set of bonds.
Economic growth: The increase in the production of goods and services in an economy over time.
Balance of payments: The difference between a country's total exports and imports.
Fiscal Coordination: This involves the coordination of monetary policy with fiscal policy. The objective is to ensure that macroeconomic policy is consistent and targeted towards achieving the desired macroeconomic outcomes.
Exchange Rate Coordination: This involves coordinating monetary policy with the exchange rate policy. The objective is to ensure that the exchange rate is consistent with macroeconomic objectives.
Financial Stability Coordination: This involves coordination of monetary policy with financial stability policy. The objective is to ensure that monetary policy does not create risks to financial stability.
International Coordination: This involves coordination of monetary policy with other countries' monetary policy. The objective is to ensure that monetary policy does not create spillovers and that coordinated policies achieve macroeconomic objectives.
Inflation Targeting Coordination: This involves coordination of monetary policy with the inflation targeting framework. The objective is to ensure that monetary policy achieves the inflation target set by the central bank.
Macroeconomic Imbalance Coordination: This involves coordination of monetary policy with macroeconomic imbalances. The objective is to ensure that monetary policy does not create macroeconomic imbalances.
Policy Mix Coordination: This involves coordination of monetary policy with the overall policy mix. The objective is to ensure that the policy mix achieves macroeconomic objectives.
Economic Growth Coordination: This involves coordination of monetary policy with economic growth objectives. The objective is to ensure that monetary policy promotes economic growth.
Central Bank Independence Coordination: This involves coordination of monetary policy with central bank independence. The objective is to ensure that central bank independence is not compromised by policy coordination.
Quote: "...to accomplish broader objectives like high employment and price stability (normally interpreted as a low and stable rate of inflation)."
Quote: "Further purposes of a monetary policy may be to contribute to economic stability or to maintain predictable exchange rates with other currencies."
Quote: "Today most central banks in developed countries conduct their monetary policy within an inflation targeting framework..."
Quote: "A third monetary policy strategy, targeting the money supply, was widely followed during the 1980s..."
Quote: "The tools of monetary policy vary from central bank to central bank..."
Quote: "Interest rate targeting is generally the primary tool..."
Quote: "Interest rates affect general economic activity and consequently employment and inflation..."
Quote: "Monetary policy affects the economy through financial channels like interest rates, exchange rates, and prices of financial assets."
Quote: "This is in contrast to fiscal policy, which relies on changes in taxation and government spending..."
Quote: "In developed countries, monetary policy is generally formed separately from fiscal policy..."
Quote: "Modern central banks in developed economies being independent of direct government control and directives."
Quote: "How best to conduct monetary policy is an active and debated research area..."
Quote: "Interest rates affect general economic activity and consequently employment and inflation via a number of different channels..."
Quote: "...indirectly via open market operations."
Quote: "Other policy tools include communication strategies like forward guidance..."
Quote: "Monetary policy is often referred to as being either expansionary (stimulating economic activity and consequently employment and inflation)..."
Quote: "Monetary policy is often referred to as being either contractionary (dampening economic activity, hence decreasing employment and inflation)..."
Quote: "...and are also an important determinant of the exchange rate."
Quote: "How best to conduct monetary policy is an active and debated research area, drawing on fields like monetary economics as well as other subfields within macroeconomics."