Open Market Operations

2019 ◽  
pp. 435-454
Author(s):  
Jan Toporowski
Keyword(s):  
Central Bank ◽  
Interest Rates ◽  
Central Banks ◽  
Transmission Mechanism ◽  
Policy Framework ◽  
Monetary Transmission ◽  
Quantitative Easing ◽  
Open Market ◽  
Financial Systems

Open market operations are the buying and selling of securities by the central bank. Such operations differ from discount operations in that open market operations are undertaken at the initiative of the central bank rather than a commercial bank. Historically, such trading of securities has predated the setting of interest rates. The emergence of long-term finance and complex financial systems has extended the range of securities in which central banks may deal. Open market operations depend on the policy framework set by the central bank. But such operations are not necessary for the setting of interest rates. Such operations are often undertaken when the monetary transmission mechanism from interest rates appears to have failed, as in the case of recent quantitative easing operations. In general, open market operations have proved effective in times of banking or financial crisis.

scholarly journals Over- and Underbidding in Central Bank Open Market Operations Conducted as Fixed Rate Tender

2005 ◽  
Vol 6 (1) ◽  
pp. 95-130 ◽  
Author(s):  
Ulrich Bindseil
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Interest Rates ◽  
Banking System ◽  
Central Banks ◽  
General Question ◽  
Open Market ◽  
Short Term ◽  
Fixed Rate ◽  
Proposed Model

Abstract Open market operations play a key role in allocating central bank funds to the banking system and thereby in steering short-term interest rates in line with the stance of monetary policy. Many central banks apply so-called ‘fixed rate tender’ auctions in their open market operations. This paper presents, on the basis of a survey of central bank experience, a model of bidding in such tenders. In their conduct of fixed rate tenders, many central banks faced specifically an ‘under-’ and an ‘overbidding’ problem. These phenomena are revisited in the light of the proposed model, and the more general question of the optimal tender procedure and allotment policy of central banks is addressed.

Central Bank Planning

2018 ◽  
Author(s):  
Benjamin Braun
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Interest Rates ◽  
Practical Reasoning ◽  
Structural Break ◽  
Central Banks ◽  
State Agency ◽  
Policy Interventions ◽  
Forward Guidance

Central banks have increasingly used communication to guide market actors’ expectations of future rates of interest, inflation, and growth. However, aware of the pitfalls of (financial) central planning, central bankers until recently drew a line by restricting their monetary policy interventions to short-term interest rates. Longer-term rates, they argued, reflected decentralized knowledge and should be determined by market forces. By embracing forward guidance and quantitative easing (QE) to target long-term rates, central banks have crossed that line. While consistent with the post-1980s expansion of the temporal reach of monetary policy further into the future, these unconventional policies nevertheless mark a structural break—the return of hydraulic macroeconomic state agency, refashioned for a financialized economy. This chapter analyses the theoretical and practical reasoning behind this shift in the governability paradigm and examines the epistemic and reputational costs of modern central bank planning and the non-market setting of long-term bond prices.

scholarly journals Framework for Preserving Financial Stability in Montenegro

2014 ◽  
Vol 3 (1) ◽  
pp. 27-41 ◽  
Author(s):  
Radoje Žugić ◽  
Nikola Fabris
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Interest Rates ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Central Banks ◽  
Primary Objective ◽  
Policy Framework ◽  
Policy Objective ◽  
The Global Financial Crisis

Abstract The global financial crisis has challenged the traditional monetary policy framework of one instrument (short-term interest rates) - one objective (price stability). More and more central banks nowadays consider financial stability as a monetary policy objective, whereas the Central Bank of Montenegro is the only one that has identified financial stability as its primary objective. As this is a relatively new objective, all central banks endeavouring to attain this objective have been facing numerous difficulties. Therefore, the article analyzes some of these difficulties such as defining financial (in)stability, the selection of indicators, macroeconomic environment for preserving financial stability, and the like. The main objective of the paper is to analyse the framework for preserving financial stability in Montenegro and the challenges that the Central Bank of Montenegro has been facing in accomplishing this objective

CHARACTERIZING THE MONETARY TRANSMISSION MECHANISM IN A SMALL OPEN ECONOMY: THE CASE OF MALAYSIA

2003 ◽  
Vol 48 (02) ◽  
pp. 113-134 ◽  
Author(s):  
WEE BENG GAN ◽  
LEE YING SOON
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Open Economy ◽  
Small Open Economy ◽  
Policy Instrument ◽  
Transmission Mechanism ◽  
Monetary Transmission ◽  
Impulse Response Functions ◽  
Monetary Transmission Mechanism

This paper evaluates the monetary policy response of Malaysia's central bank and the nature of monetary transmission mechanism in the 1990s when the exchange rate was on a managed float and the capital account was open. Structural vector autogression analysis is employed to evaluate how the central bank sets short term interest rates taking into consideration the constraints faced in adjusting the policy instrument to shocks to the economy. The impulse response functions and the variance decomposition indicate that the central bank preferred to use foreign exchange intervention rather than interest rate to stabilize the ringgit exchange rate. The results suggest that a sustained high level of interest rates would have caused a prolonged and deep contraction in output during the East Asian financial crisis.

scholarly journals The Monetary Transmission Mechanism: An Empirical Framework

1995 ◽  
Vol 9 (4) ◽  
pp. 11-26 ◽  
Author(s):  
John B Taylor
Keyword(s):  
Interest Rates ◽  
Rational Expectations ◽  
Transmission Mechanism ◽  
Monetary Transmission ◽  
Market Prices ◽  
Policy Rules ◽  
Monetary Transmission Mechanism ◽  
Real Gdp ◽  
The Impact

This paper provides an overview of the monetary transmission mechanism describing the impact of changes in monetary policy on real GDP. Changes in financial market prices--including long-term interest rates and exchange rates--are the main vehicle for the transmission of policy. The framework incorporates rational expectations and policy rules. It is empirical and appears to fit the facts well.

scholarly journals Powrót do przedkryzysowej polityki pieniężnej a stabilność systemu finansowego

2017 ◽  
pp. 190-200
Author(s):  
Ilona Skibińska-Fabrowska
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Interest Rates ◽  
Balance Sheet ◽  
Policy Instruments ◽  
Central Banks ◽  
Financial Assets ◽  
Negative Effects ◽  
The Stability

Faced with the financial crisis in 2008, the central banks used conventional monetary policy instruments. However, the problem of zero lower bond forced them to use unconventional monetary policy instruments - quantitative easing carried out as part of the so-called central bank balance sheet politics and relying on the buying by the central bank of di&erent kinds of financial assets - resulting in stabilization of the situation on financial markets in conditions of low long-term interest rates. Balance sheet totals of the central banks rose repeatedly. Their structure also changed. At present possible effects for the stability of the financial system of the return to the pre-crisis monetary policy are the topic of debate. The exit strategy is giving rise to a significant risks and the coordination of economic policy and the transparency of action taken by monetary authorities can only minimize possible negative effects

scholarly journals Monetary Policy Transmission in Emerging Markets and Developing Economies

2020 ◽  
Vol 20 (35) ◽  
Author(s):  
Luis Brandao-Marques ◽  
R. Gelos ◽  
Thomas Harjes ◽  
Ratna Sahay ◽  
Yi Xue
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Developing Economies ◽  
Central Banks ◽  
Output Growth ◽  
Policy Framework ◽  
Monetary Transmission ◽  
Monetary Policy Transmission ◽  
Policy Transmission

Central banks in emerging and developing economies (EMDEs) have been modernizing their monetary policy frameworks, often moving toward inflation targeting (IT). However, questions regarding the strength of monetary policy transmission from interest rates to inflation and output have often stalled progress. We conduct a novel empirical analysis using Jordà’s (2005) approach for 40 EMDEs to shed a light on monetary transmission in these countries. We find that interest rate hikes reduce output growth and inflation, once we explicitly account for the behavior of the exchange rate. Having a modern monetary policy framework—adopting IT and independent and transparent central banks—matters more for monetary transmission than financial development.

scholarly journals Panel Data Analysis of Monetary Transmission Mechanism for European Union Countries

2017 ◽  
Vol 4 (2) ◽  
pp. 42
Author(s):  
Dina Cakmur Yildirtan ◽  
Selin Sarili
Keyword(s):  
European Union ◽  
Interest Rates ◽  
Debt Crisis ◽  
Panel Data Analysis ◽  
Aggregate Demand ◽  
Transmission Mechanism ◽  
Monetary Transmission ◽  
Response Analysis ◽  
Data Set ◽  
Monetary Transmission Mechanism

Monetary transmission mechanism is the mechanism which shows  in what ways and what extent interaction between the real economy-monetary policy, impacts aggregate demand and production. While transmission channels or mechanisms traditionally classified they divided into three categories; interest rates, Exchange rates and other asset prices.In this study to test the existence of the European debt crisis by the monetary transmission mechanism, 15 members of European Union country by using annual (2002-2014) data set were included into study. We use panel unit root tests to analyze whether the variables in the model are stationary or not. For the countries included in the study, panel causality tests developed by Granger is applied. Panel Vector Autoregressive Model has been estimated and results of Impulse-Response Analysis and Variance Decomposition have been interpreted.

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