National Tamers versus Global Tigers
Chapter 3: Monetary and financial authorities
3. Monetary and ﬁnancial authorities Monetary and ﬁnancial stability are of central importance to the eﬀective functioning of a market economy. They provide the basis for rational decisionmaking about the allocation of real resources through time and therefore improve the climate for saving and investment. . . . In extreme cases, disruptions to the ﬁnancial sector can have severe adverse eﬀects on economic activity and even on political structures. Maintaining stability is thus a key objective of ﬁnancial authorities. Andrew Crockett (1997, p. 1) 3.1 NATIONAL MONETARY AND FINANCIAL AUTHORITIES Monetary and ﬁnancial stability constitutes a shared objective that is pursued jointly by the authorities of each country, but with a clear separation of roles and instruments. ‘Monetary stability’ implies the absence of inﬂation or deﬂation in the prices of goods and services. In the majority of countries the responsibility for ensuring monetary stability is entrusted to the central bank, which conducts monetary policy accordingly. Price stability can also be pursued by means of administrative controls managed directly by government authorities, but these instruments generally prove ineﬀective in the medium term and provoke severe distortions in the functioning of the economic system and in the allocation of resources. In fact, price controls are typical of planned economic systems and have only been used by market economy countries in exceptional circumstances (for instance in wartime or after an oil price shock). The pursuit of monetary stability also depends on a country’s general macroeconomic situation, for which government authorities are...
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