Financial Institutions and Markets: Inflation Targeting and Costs of Inflation

To achieve a medium-term inflation target

Open market operations, discount rate, reserve requirements

Creates uncertainty and hampers economic growth

<p>Buying and selling of government securities to expand or contract the money supply</p> Signup and view all the answers

<p>Increasing transparency helps in understanding central bank objectives</p> Signup and view all the answers

<p>To hold central banks responsible for achieving their inflation target</p> Signup and view all the answers

<p>Independency refers to how free the Central Bank is from political pressures in pursuing its goals.</p> Signup and view all the answers

<p>Instrument Independence is the ability of the central bank to set monetary policy instruments.</p> Signup and view all the answers

<p>The Central Bank's independence allows it to pursue policies that may be politically unpopular but are in the best interest of the public.</p> Signup and view all the answers

<p>Goal Independence is the ability of the central bank to set the goals of monetary policy.</p> Signup and view all the answers

<p>Presidential appointment clearly sets the direction of the central bank.</p> Signup and view all the answers

<p>Matched sale-purchase transactions involve the Central Bank selling securities but agreeing to buy them back.</p> Signup and view all the answers

<p>Issue new currency, remove damaged currency, conduct research, act as lender of last resort</p> Signup and view all the answers

<p>Employment, economic growth, stability of financial markets, interest-rate stability, foreign exchange market stability</p> Signup and view all the answers

<p>It leads to lower unemployment and lower interest rates initially.</p> Signup and view all the answers

<p>Increasing interest rates to prevent inflation can lead to short-term increase in unemployment.</p> Signup and view all the answers

<p>ir = i - πe</p> Signup and view all the answers

<p>Price stability is not inconsistent with long-run goals but involves short-run trade-offs like increased interest rates and temporary unemployment.</p> Signup and view all the answers