Central banks have a significant influence on financial markets from "summary" of The Economics of Money, Banking and Financial Markets, eBook, Global Edition by Frederic S. Mishkin
Central banks play a crucial role in influencing financial markets. Through their monetary policy tools, central banks can directly impact interest rates, which in turn affect the behavior of borrowers and lenders in financial markets. For example, when a central bank lowers its target interest rate, it becomes cheaper for banks to borrow money, leading to lower interest rates for consumers and businesses. This can stimulate borrowing and spending, boosting economic activity and asset prices in financial markets.
Conversely, when a central bank raises its target interest rate, borrowing becomes more expensive, leading to higher interest rates for consumers and businesses. This can dampen borrowing and spending, slowing down economic activity and potentially causing asset prices in financial markets to fall. Cen...
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