GOALS OF MONETARY POLICY

 Running head: GOALS OF MONETARY POLICY 1
Goals of Monetary Policy
Name
Institutional Affiliation
GOALS OF MONETARY POLICY 2
Abstract
Managing an economy requires a specific focus on the critical elements necessary to ensure
that adopted macroeconomic policies have the capability to guarantee economic activity and
stability, premised upon central banks of different countries ensuring that relevant economic
indicators are monitored, positions adjusted appropriately, and appropriate policies are
implemented. Monetary policy is a measure, which can elude significant influence over the
nominal level of interest rates, manage inflation within the economy, and stabilize an
economy. These elements are intertwined, and as such, they provide for a precise definition
of how the central bank can adjust its policy in response to prevailing economic condition in
a country. The specific goals of monetary policies, therefore, include maintaining financial
and price stability across the economy, as well as establishing appropriate labor relations,
while influencing both foreign and domestic investment. Other goals include credit control,
economic growth, stabilizing and maintaining interest rates, and also ensuring stability of
foreign exchange rates.
Keywords: monetary policy, interest rates, economic growth, exchange rates, credit control
GOALS OF MONETARY POLICY 3
Goals of Monetary Policy
Macroeconomic policies are often aimed at underlining the critical role played by the
central banks of various countries in ensuring that they have the capability of guaranteeing
stability in economic activity, founded upon the banks' capacities to monitor relevant
economic indicators, adjust its position accordingly, and implement aggressive policies when
required (Deist, 2011). One adopted measure is the monetary policy, which has significant
influence over the nominal interest rates level, average inflation within an economy, and
currency stabilization. These elements have an intertwined relationship, and monetary
policies thus describe the manner through which the Central Bank can adjust its policy in
reaction to prevailing economic circumstances to prevent the country from both internal and
external shocks. 

Managing Inflation
Inflation is a key determinant of Central Bank policy, which can also respond to
dynamics in employment rates and GDP. Thus, for economic stabilization, nominal interest
rates are changed using anti-cyclical policies to diminish fluctuations in the economy.
Therefore, the difference between a cautious or aggressive approach taken by the Central
Bank is premised upon public expectations of its strategic future in monetary transmission
activities, including either easing or tightening monetary policy or taking no action at all
(Burton &Bruce, 2009). The desired financial goals are the determining factors on which
particular monetary policy is to be adopted, and among the goals are stabilizing interest rates,
financial markets, prices, and foreign exchange trade, as well as achieving stability in output,
addressing low employment levels, and achieving economic growth. As such, countries'
central banks will adopt different controls to attain their individual dynamic goals. 

Maintaining Price and Financial Stability
GOALS OF MONETARY POLICY 4
Maintaining price and financial stability is a major monetary mandate delegated to the
central banks of developing countries (Bhattacharyya, 2012). By committing to price
stability, wage claims between employers and employees take place in an environment of
certainty, which considers future financial conditions and pressures arising from the costs of
living. Moreover, any uncertainties relating to economic instability, or where there could be
instability in inflation, can result in industrial unrest and many societal problems. Both
financial and price stability are crucial towards the attraction and maintenance of foreign and
domestic direct investments. By enabling excellent financial standards, vulnerability to
sudden international capital inflow halts can be adequately addressed, and lead to expansions
in output, employment, and investments. Central banks achieve this vital function by
adjusting monetary policy where international financial flow restrictions are absent, using
such policy instruments like exchange rate, monetary aggregates, and short-term interest
rates. Developing countries achieve this by establishing capital controls that reduce global
financial flows, although they may potentially impose restrictions on foreign investments,
hence becoming a hindrance to job creation and economic growth.
Credit Control
Credit control is an important strategy utilized by central banks in achieving price
stability to ensure there are no significant inflationary tendencies. This results in financial and
price stability (Friedman &Woodford, 2010). This requires all credit to be directed during
initial econo