This note looks at some of the key roles of national central banks such as the Bank of England and the United States Federal Reserve.
What are the key roles of a national central bank?
Monetary stimulus policies
A bold monetary stimulus describes a combination of measures that together form an expansionary monetary policy designed to stabilize confidence, demand and output in a recession and debt-hit economy.
One of the features of the handling of monetary policy in many advanced countries (including the USA and the UK) in response to the global finance crisis has been the willingness of central banks to run loose monetary policies in a bid to prevent one or more economies falling into a persistent deflationary slump.
Since 2008 in the UK we have seen:
Nominal interest rates have been at 0.5% since March 2009 and are likely to remain there for the time being depending on the strength of growth and inflationary pressures. The Bank of England has recently introduced a policy of forward guidance when it comes to setting interest rates.
Under forward guidance, the bank's policy main interest rate will remain at a record low of 0.5% until unemployment falls to 7%, in the hope that this will provide more certainty for borrowers and financial markets.
Forward guidance also operates in the United States. In the US the Federal Reserve has committed itself to maintain near zero interest rates as long as inflation is forecast to remain below 2.5% and unemployment exceeds 6.5%.
A bold monetary stimulus is designed to:
Add these revision guides and worked answers to your essential revision resources for AS & A2 Economics exams this summer. Our revision guides are brand new and bring your tired old...