Central Banks, originally created as bankers' banks, implement monetary policy using their leverage over the supply of money and credit standards. Since the Bank of England was founded in 1694, through the gold standard which lasted until the 1930s, and into modern times, central banks have pursued monetary policy to stabilize the banking system. Central banks monitor currency flows and inflation, acting when crises, such as bank runs, emerged. More recently, central banks have taken an increasingly expansive role in stabilizing economic fluctuations. In the yet to be confirmed current recession, the Federal Reserve has used open market operations and innovative financial arrangements to try to forestall the recession and bail out failing financial institutions.

Reading assignment:

Fabozzi et al. Foundations of Financial Markets and Institutions, chapters 4 and 5

Jeremy Siegel, Stocks for the Long Run, chapters 11, 12 and 13

Hawtrey, R. G., The Art of Central Banking, chapter 4 (pp. 116-123)

Resources:

PowerPoint slides from screen - Lecture 16[PDF]