The function of the central bank

Walter Stanners ()

Macroeconomics from EconWPA

Abstract: The general view of the media, bankers, business and politicians, not noticeably contradicted by academics, is that one of the main functions, or the main function, of the central bank is to analyse the progress of the economy, and then to steer it with skilful judgement towards health and growth, by making decisions to change their base interest rate, with carefully chosen timing, amount and direction. The data presented here show that it is impossible to sustain this notion of skilful time- critical steering, or even that the central bank does in fact lead or determine the short term interest rates available to savers or business. The contrary proposition, that commercial short-term interest rates are in fact observed and followed by the central bank, is perhaps not mathematically provable, but seems generally to be in accordance with the observed facts.

Keywords: central bank; interest rate; discount rate; repo rate; base rate; growth; inflation; exchange rate (search for similar items in EconPapers)
JEL-codes: E (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin, nep-ifn and nep-mon
Date: Written 2002-01-28
Note: Type of Document - Word doc with 9 bitmap figures ; prepared on IBM PC ; to print on Lexmark; pages: 19 ; figures: 9 bitmap figures. none

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