Role of central banks in maintaining financial stability and controlling inflation

Abstract

Inflation and financial stability are the focus of this study on the function of central banks. The dependent variables chosen for this study are economic growth and inflation. Broad money, GDP deflator, consumer price index, national income, and government expenditure are the independent variables that have been chosen. Secondary data covering the years 2013–14 through 2022–23 formed the basis of the study. The data originated from a Ministry of Finance economic survey report. In order to address the core concerns related to the function of central banks in regulating inflation and preserving financial stability, this study has utilized a descriptive research design in addition to a causal comparative research design. The study revealed that economic growth is favorably influenced by GDP deflator. It suggests that rise in GDP deflator results in higher economic development. Still, GDP deflator lowers the inflation rate. It suggests that the GDP deflator increases causes the inflation rate to drop. On the other hand, consumer price index helps to control inflation and promotes economic development. Higher the consumer price index, more would be the inflation and economic growth. Likewise, national income influences inflation and economic development favorably. It shows that inflation and economic growth would be more in line with greater national wealth. Government spending also favorably correlates with inflation and economic growth. It suggests that inflation and economic growth would be more in line with government expenditure greater than otherwise. Broad money also helps to control inflation and promote economic development. It suggests that rise in broad money results in rise in inflation and economic growth. Keywords: GDP deflator, Consumer Price Index, National Income, Broad Money Economic Growth and Inflation