Institutional transformation of the central banks in the conditions of financial instability

Abstract

Introduction. Nowadays, the role of institutional factors in orientation of monetary authorities to ensure price stability and accountability of Central banks for compliance with the inflation target in the process of monetary policy implementation is increasing. The global financial turmoil generates institutional changes in the sphere of monetary regulation.

Purpose. The problem of transparency of monetary policy acquires exceptional importance in terms of overcoming the global financial crisis and achieving financial stability. Transparency primarily provides clarification by the Central Bank the analytical approach, which it takes into consideration in the internal decision-making and in the evaluation of the economic situation and the performance of public economic feasibility of the selected Central Bank rate. Increasing of transparency of monetary policy can achieve the following macroeconomic effects: the reduction in the volatility of inflation, greater flexibility in the response of the economy to the shock of the situations, reducing of information asymmetry, increasing of market efficiency at the macro level.

Method (methodology). It is worth noting that one of the most significant changes in the institutional status of the Central banks is delegating them the right to ensure price stability, due to the fact that the ultimate objective of monetary policy in modern conditions, as the experience of economically developed countries, should not be short-term but long-term economic stabilization. The implementation of the monetary regime of inflation targeting Central banks of several countries gave positive economic effect, although the mandates of a number of Central banks include, despite the achievement of price stability, and also other macroeconomic goals (achieving financial stability – Bank of England, the employment – Bank of Australia and so on). Focusing on the mandate of the Central Bank in modern conditions, it should be noted that in times of financial instability, the Central Bank mandate should be broadened not only to achieve