ABSTRACT
In introducing the monetary policy, the chapter starts with the rationale of central banks and asks the question: Is the central bank the (only) monetary policymaker? It then takes an eclectic route of discussing the objective(s) of monetary policy, rules versus discretion in monetary policymaking, or the channels of monetary policy transmission. In explaining monetary operations in central banks, the chapter probes into a number of specific issues, like the structure of interest rates and the yield curve. As the current regime of monetary policy implementation, it looks into the pros and cons of inflation targeting. The chapter also discusses issues relating to monetary modelling, such as Lucas Critique.
