The deregulation of the financial sector combined with the increasing globalization and the free movement of capital accelerated economic growth worldwide, but also caused financial crises and bank failures. A decisive role in triggering the recent economic crisis played by factors derived from the financial system, which are associated either with excessive credit growth, or inadequate supervision of financial institutions related to the risk assessment problem.
Central banks regulate money supply and influence the trading of financial products. Expansionary monetary policies lead to the increase of prices of stocks, bonds, properties and commodities, as well as to (devaluation of) weaken the national currency. The restrictive monetary policies prevent increases in valuations of assets, and often contribute to their (decrease) downfall. The restrictive policy also strengthens the national currency.
The purpose of this article is to present the growing interaction between monetary policy, economic growth and the situation in financial markets. The recent global financial crisis and the subsequent actions of central banks have shown how these concepts are closely linked. This paper presents the effect of monetary policy on the real economy, the real estate market and the trading of financial products. In the paper the Federal Reserve System is used as an example.
The authors argue that coordination of monetary policy and macro-preventive supervision, creates the need for new institutional arrangements. A key role in these processes should played by the central banks, which have sufficient experience in conducting economic analyses, appropriate institutions and most important they are independent