n principle, constructing an organisation to undertake certain functions should involve
specifying the objectives underlying those functions. Likewise, charging an organisation
with the pursuit of specific objectives should map directly into the choice of functions.
Functions and objectives are, from this theoretical perspective, integrated.
Historically, however, it would seem that central banks have been understood more in
terms of their functions than their objectives. Thus, older treatises on central banking
had a lot to say about functions but relatively little about objectives; the same was the
case for legislation.4,5
Even today, functions that are widely regarded as core elements
of central banking are not always tied to statements of the relevant objectives. For
example, as will be discussed later, the objective associated with the important
financial stability function is to date typically less well specified than the monetary
policy objective. At the same time, objectives for some functions have been
fundamentally altered as the understanding of what is feasible has changed.
We start with a discussion of objective setting with respect to the main policy functions
before elaborating on the range of functions undertaken by central banks.