Devolved monetary policy

Abstract

Inflation is the sustained increase in the prices of goods and services. Inflation is a double-edged sword, such that too much or too little will affect the economy poorly. Various Governments employ their Central banks or Federal reserves to try and regulate inflation. The Central banks and Federal reserves have various tools in their fight to restrain inflation to a level they feel is optimal for their country. These are referred to as monetary policies, they include, but are not limited to: interest rates and open market operations. In this changing world, with all the advances in technology and such, monetary policy must be flexible and adjust quickly to several scenarios that could prove critical to a nation's economy. Tinbergen's (1952) Rule that the number of achievable policy goals cannot exceed the number of policy instruments dictates that a mechanical monetary policy rule can fail to achieve its stated objectives of full employment and target inflation. The 2007 financial crisis that brought about increased inflation globally and small instances such as the effect of the election period in Kenya had on the economy; these are some of the examples that call upon flexible monetary policy.