The Monetary Policy

The monetary policy involves all the actions of the central bank on the economy of any country. The monetary affect the growth of a country. The monetary policy also has an influence on the interest rate of a specific country. It is a regulatory measure by the central bank. This paper will critically look on the monetary policy and economic models that are applied to make the monetary policy successful.
There are certain goals of the monetary policy that have been developed over time. The goals were developed by Federal Reserve act. These goals are; promotion of price stability, ensuring that there is full employment in the economy and stability of interest rates. The policies have been effective for many countries during the times of recession and inflation. When the prices are stable, the standards of livings for people are improved and there is economic growth and better living standards. In the long run, price stability is able to achieve employment and sustainable growth of the economy (Mishkin, 2007).
The monetary policy also plays an effective role in financial stability and good performance of the economy of a country. This is put into action by preventing any disruptions of the county in the financial sector. The policy ensures that the financial sector remains effective through the use of specific control measures established. The financial systems are interdependent in any country and the use of this policy ensures coordination of the central bank and other commercial banks in making the economy stable. The Federal Reserve ensures that the financial systems do not experience any external shocks (Mankiw,2005).
The monetary policy affects the economy of a country in various ways. This is done by a linkage between the policy and the balances that are held by the Federal Reserve banks. The depository institutions in the economy have opened accounts at their Reserve banks. The depository institutions keep on trading these balances that are in the Reserve...