Abstract
Central banking lies at the heart of macroeconomic policy analysis. The management of high-powered money by central banks dominates the stochastic behaviour of the price level, inflation and nominal interest rates. Moreover, monetary policy is the primary means by which governments attempt to stabilise employment and output fluctuations. But a central bank is more than the national monetary authority. It is also the custodian of the national banking system. In this latter capacity central banks behave as financial intermediaries, providing emergency credit assistance to individual institutions. They also stand ready to provide last-resort lending in the event of system-wide financial crises. Even routine nominal interest rate smoothing by central banks is pursued in large part because of the belief that it stabilises financial markets.
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© 1993 Stephen F. Frowen
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Goodfriend, M. (1993). Financial Theory and Central Bank Policies. In: Frowen, S.F. (eds) Monetary Theory and Monetary Policy. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-23096-9_8
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DOI: https://doi.org/10.1007/978-1-349-23096-9_8
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