Central Bank Policy: Some First Principles

The acceptance by central banks in many countries of the importance of controlling inflation and the failure of previous central bank practices in several countries to reduce inflation had renewed interest by central banks in the technical aspects of monetary policy. The most recent expression is the statement by the Chancellor of the Exchequer in March 1980.1 Like earlier statements issued by central banks and governments in Europe and North America, the Chancellor's statement is not entirely clear about the principles of monetary control, so it is useful to restate some of the main principles.