Monetary theory and monetary policy a central banker's view

Summary In this article attention is paid to monetary theory, the relationship between the instruments of monetary policy and other important macro-economic policy instruments, and finally to the real possibilities of pursuing an effective monetary policy. The conclusion from the theoretical analysis is that the total money supply must be considered one of the most important macro-economic policy instruments. An excessive supply of money will sooner or later lead to inflation, to the debasement of money. Therefore the volume of money should be controlled. The use and effectiveness of monetary policy should always be seen in the context of other policy instruments, especially fiscal policy and, under circumstances, wage- and price policy. The possibilities to pursue an effective monetary policy are not unlimited. The effectiveness of such a policy can,e.g., be hampered by external factors. It is vital for a central bank to have the widest possible range of instruments at its disposal.