The impact of the central bank role to improve the financial market environment

Abstract

The economic theories show that financial markets are stable and never mis-priced which the experience (the current credit crisis) doubts this to be patently untrue. Efficient market theories tell us that central banks are unnecessary; most economists say that the efficient market theories are correct and central banks are necessary, but cannot explain why. Some central banks think money supply is important to monetary policy while others think money supply is unimportant for monetary policy. Today the general consensus is that the central banks have made mistakes and inadvertently created the conditions leading up to the current credit crisis. Unfortunately, when we turn to the economic orthodoxy for an opinion on what went wrong and how we can fix it we find there is not even an established framework by which we can discuss the issue.