Financial Globalization and the Effects of Monetary Policy

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The 2008 global financial crises had a deep impact all over the world. The experience of the global financial crises dates back to last century. Firstly, national economies turned to global economies due to rapid development in technology; increase in trade of commodities and capital flows after the industrial revolution. However, failure of the gold standard system was the main reason for the first global crisis in the late eighteenth and early nineteenth century. Initially, the crisis emerged in the financial markets and spread to the commodity markets, and later to international trade. The Great Depression of 1929 would be described by sharp decreases in production, high unemployment, inflation and interest rates. Similarly, the 2008 global crisis emerged on financial markets. The monetary policies followed by developing countries influenced all the markets in not only developed but also developing countries. This paper aims to discuss the impact of globalization and monetary policies on different markets and different parts of the economies. In the first part of the paper, the main instruments of monetary policies will be explained. The question of how global factors will become an important part of domestic nations will be one of the main issues in this part. The role of central banks and their policies on developed countries is another issue. In the second part, the main focus will be on foreign exchange rate volatility. Here, especially 2008 financial crisis will be analyzed in perspective of Euro area countries. The main arguments for recovery of financial crisis another issue discussed.