Modern Central Banking

This chapter examines how central banking has evolved in recent decades by looking at two main areas of central bank activities: monetary policy and financial stability policy. It starts by describing a set of nine basic scientific principles derived from theory and empirical evidence that now guide thinking at almost all central banks, which is referred to as the science of central banking. Then the essay discusses how the science of monetary policy provides a framework for understanding central bank governance and how modern central banks conduct monetary and financial stability policies. Central banking has entered a brave new world in which challenges have become greater and the conduct of policy has become more complex.