DOI: 10.36347/sjebm.2014.v01i02.005

Pages: 64-72

Abstract: Monetary management through monetary policy, in order to achieve the macroeconomic policy objectives of sustained economic growth, control of inflation and financial stability, remains a subject which still baffles economists. The objectives of monetary policy differ in advanced and emerging economies due to their structural differences. Besides, focusing on the objective of price stability, the advanced economies have now adopted a new objective of output stabilization, as high inflation is no more a problem in these countries. On the other hand, most Central Banks of EMEs pursue a multitude of objectives of the monetary policy, viz. price stability, full employment, economic growth and exchange rate stability. In India, RBI has been pursuing the objective of price stability with sustained economic growth, since high inflation has continued to plague Indian economy since independence. In the liberalized environment, monetary policy of RBI additionally began focusing on maintaining orderly conditions in money, securities and foreign exchange markets. The monetary policy objectives are attained through monetary targets, which differ from country to country. The paper highlights the role of monetary targets and the different targets being pursued by advanced as well as the EMEs. Instruments of monetary control and the monetary policy transmission mechanisms are also discussed, also pointing out the differences in these aspects in advanced as well as emerging economies.