''To promote economic growth, central banks can, simply increase target rates when the economy is at unsustainable rapid rate & decrease rate when economy growth is deemed to slow'' Can any body explain how it actually works

You should read this: http://www.bankofengland.co.uk/publicat ... s.pdfabout the transmission mechanism.

It does not refer to inflation targeting, but interest rate targeting. When the economy is growing too quickly, the Central Bank can borrow money in short-term markets, increase reserve requirements and increase discount rates to force short-term rates higher. When the economy is growing too slowly, it can do the opposite.How it actually works is bankers have to work from out-of-date, inaccurate, conflicting data and make judgment calls. The effects of their actions are unpredictable. My opinion is overall it doesn't work very well, or at all. But many people disagree.

thanx