Monetary policy

What it means

A central bank’s management of money supply and interest rates to pursue price stability and, in some mandates, employment.

The exam angle

Works with long and variable lags, which is why policy is set on forecasts rather than on today’s data.

Where it appears in the syllabus

• EconomicsCFA Level I · exam weight 6–9% · Market structures, business cycles, policy, trade and exchange rates.
• Foundations of Risk ManagementFRM Part I · exam weight 20% · Risk taxonomy, governance, CAPM, multifactor models, financial disasters.

Related terms

• Adverse selectionThe problem that arises when the party with better information self-selects into a transaction, leaving the…
• InflationA sustained rise in the general price level, reducing the purchasing power of money.
• Moral hazardThe incentive to take more risk once someone else bears the consequences.
• Business cycleThe recurring pattern of expansion, peak, contraction and trough in economic activity.
• Core inflationInflation excluding food and energy prices, which are volatile and often driven by supply rather than demand.
• Fiscal policyGovernment use of spending and taxation to influence aggregate demand.