The branch of economic policy usually handled by a country's central bank and concerned with the management of the money supply, interest rates and financial conditions generally as part of the bank/government's broad objectives of achieving high employment, sound economic growth and low inflation (with the priority of these objectives varying from country to country). In a deregulated financial system such as prevails in many countries, the tools of monetary policy include open market operations by the central bank in securities markets and intervention in the foreign-exchange market. The pendulum tends to swing between an active and passive role for monetary policy. In the 1950s and 1960s governments tended to focus on fiscal policy - on prices and income levels. Surging inflation in the 1970s brought monetary policy into greater prominence as control of monetary growth was generally seen as necessary, if not sufficient, to control inflation. That did not turn out to be a cure-all either and governments have come to use a mix of monetary, fiscal and wages policies to keep inflation under control and maintain growth. See also: fiscal policy, monetarism, money supply.
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