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Essay / Research Paper Abstract
A 2.5 page paper. Should the central bank be independent? The writer reports the purpose and duties of a nation's central bank and the fact that independence is becoming a more accepted notion. The essay also comments on the reason central banks can never be completely independent. Bibliography lists 4 sources.
Page Count:
2 pages (~225 words per page)
File: MM12_PGcntbn.rtf
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Unformatted sample text from the term paper:
the U.S., the Federal Reserve Bank, the nations central bank, conducts the nations monetary policy; supervises and regulates banking institutions and protects the credit rights of consumers; maintains the stability
of the financial system; and provides certain financial services to the U.S. government, the public, financial institutions, and foreign official institutions (Board of Governors of the Federal Reserve System, 2001).
The argument for central bank independence is becoming stronger and the idea is becoming more accepted in financial circles (Debelle and Fischer, 2003). This new premise is based on three
specific foundations that include the "success of the Bundesbank and the German economy over the past forty years; the theoretical academic literature on the inflationary bias of discretionary policy-making; and
the empirical academic literature on central bank independence (CBI) (Debelle and Fischer, 2003). Central bank independence is defined and the level or degree of autonomy the central bank has from
the political authority that makes monetary policies (Franzese, 1999). The goals of the bank and of the polity can easily be diametrically opposed. For instance, central bank officials are conservative
and determined to control inflation while democratic governments tend be highly influenced by societal pressures that are more accepting of inflation (Franzese, 1999). Thus, the central bank is most generally
more anti-inflation than democratic governments. There are both advantages and disadvantages to central bank independence. One of the strongest arguments in favor of independence is the fact that most economists
and political scientists agree central bank independence lowers inflation (Franzese, 1999). While the bank would keep inflation at low levels, it would inherently place hardships on certain social welfare programs
(Franzese, 1999). That is the disadvantage, the bank may be too conservative, which would act as a detriment to the general growth of the society. It should be pointed
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