Goals of the monetary policy

Goals of the monetary policy

Goals of monetary policy are to "promote maximum employment, inflation

(stabilizing prices), and economic growth." If economists believe it's possible

to achieve all the goals at once, the goals are inconsistent. There are

limitations to monetary policy.

The term "maximum employment" means that we should try to hold the

unemployment rate as low as possible without pushing it below what

economists call the natural rate or the full- employment rate. Pushing

unemployment below that level would cause inflation to rise and thereby ruin

the other objective--stable prices, economic growth, which is our objectives

in the long run.

Overall financial stability will lead to a better balance between consumption

and saving that will make resources available for investment purposes, reduce

changes in the economy created by the inflation in the past, and by the

reactions of savers, as well as fostering high and sustainable economic

growth; and contribute towards an investor friendly environment that will

attract foreign investors to the country.

Evidence has suggested that economies perform better, in terms of growth,

employment and living standards, in low inflation environments than they do

when inflation is persistently high. This evidence is a comparison across

countries over long periods. The association between economic performance,

measured by growth of output or growth of productivity, and inflation. This

indicates a negative relation; that is, the higher the inflation, the lower the

rate of real growth.

Evidence suggesting that low inflation promotes growth has motivated

recent decisions by a number of central banks and governments, most notably