Monetary policy is, however, going through a process of ‘trial and error’ and there is a long way to go before an efficient policy can be designed.” One of the important problems of monetary policy is that it does not produce immediate effects, but operates only after some time lag. To understand the importance of monetary policy in the equation, one must first understand what the term means. The forward-looking nature of this strategy insures that timely … ADVERTISEMENTS: Importance of Monetary Policy for Economic Stabilization! Read this article to learn about the major role of monetary policy in a development economy: Monetary policy in an underdeveloped country plays an important role in increasing the growth rate of the economy by influencing the cost and availability of credit, by controlling inflation and maintaining equilibrium the balance of payments. Central banks need clear policy frameworks to achieve their objectives. Monetary policy is a central bank's actions and communications that manage the money supply. By insuring price stability, monetary policy can thus make an important contribution to macroeconomic stability. Low inflation is considered an important factor in enabling higher investment in the long-term. One of the features of an inflation-targeting framework is the greater degree of transparency it brings to monetary policy. In some countries such as India the Central Bank […] What happens to money and credit affects interest rates (the cost of credit) and the performance of the U.S. economy. Central banks play a crucial role in ensuring economic and financial stability. Monetary policy is also concerned with maintaining a sustainable rate of economic growth and keeping unemployment low.

Low inflation. It is more and more recognized that the standard rational approach does not provide an optimal foundation for monetary policy actions. Monetary policy is another important instrument with which objectives of macroeconomic policy can be achieved. Inflation targeting is a monetary policy framework in which the central bank announces an explicit inflation target and implements policy to achieve this target directly. During the past 20 years, central bank has made a tremendous change in its policy of disclosure from being highly confidential to a state of full disclosure.

Most modern central banks target the rate of inflation in a country as their primary metric for monetary policy - usually at a rate of 2-3% annual inflation. Stable economic growth. The term "monetary policy" refers to what the Federal Reserve, the nation's central bank, does to influence the amount of money and credit in the U.S. economy. In its monetary policy strategy the Eurosystem has adopted a medium-term orientation. Aim of monetary policy.