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.

scholarly journals Conventional Monetary Policy

2021 ◽  
pp. 29-51
Author(s):  
Ulrich Bindseil ◽  
Alessio Fotia
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Interest Rates ◽  
Financial Stability ◽  
Balance Sheet ◽  
Central Banks ◽  
Control Measures ◽  
Short Term ◽  
Balance Sheets ◽  
Bank Balance Sheets

AbstractThis chapter introduces conventional monetary policy, i.e. monetary policy during periods of economic and financial stability and when short-term interest rates are not constrained by the zero lower bound. We introduce the concept of an operational target of monetary policy and explain why central banks normally give this role to the short-term interbank rate. We briefly touch macroeconomics by outlining how central banks should set interest rates across time to achieve their ultimate target, e.g. price stability, and we acknowledge the complications in doing so. We then zoom further into monetary policy operations and central bank balance sheets by developing the concepts of autonomous factor, monetary policy instruments, and liquidity-absorbing and liquidity providing balance sheet items. Subsequently we explain how these quantities relate to short-term interest rates, and how the central bank can rely on this relation to steer its operational target, and thereby the starting point of monetary policy transmission. Finally, we explain the importance of the collateral framework and related risk control measures (e.g. haircuts) for the liquidity of banks and for the conduct of central bank credit operations.

4. The central bank and the conduct of monetary policy

2016 ◽  
pp. 54-71
Author(s):  
John Goddard ◽  
John O. S. Wilson
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Banking Industry ◽  
Banking System ◽  
Central Banks ◽  
National Currency ◽  
The Uk ◽  
The International Monetary Fund

In most countries, the central bank manages the country’s money supply and interest rates. Most central banks hold a monopoly over printing the national currency and have supervisory or regulatory responsibilities for overseeing the banking industry. The central bank typically performs a dual role, operating as the government’s banker, and as banker to the rest of the banking system. ‘The central bank and the conduct of monetary policy’ explains the central bank’s role and describes the central banks of the UK, EU, and US, as well as the International Monetary Fund. It also outlines the central bank’s responsibility for implementing monetary policy and explains the deposit expansion multiplier, interest rate targeting, and quantitative easing.

scholarly journals CENTRAL BANK DIGITAL CURRENCY: ECONOMIC AND LEGAL CHARACTERISTICS

2019 ◽  
pp. 94-100
Author(s):  
T.S. Hudima ◽  
V.A. Ustymenko
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Financial Stability ◽  
Banking System ◽  
Legal Framework ◽  
Central Banks ◽  
Digital Currency ◽  
Business Entities ◽  
The Right ◽  
Article 5

The article is devoted to identifying the peculiarities of the central bank digital currency (CBDC), explaining their impact on the monetary policy of the state, and identifying the prospects for the transformation of domestic banking legislation in connection with the implementation of the CBDC. It is noted that the scope of competence of the Central Bank and the legal basis for the issuance of the CBDC will depend on the economic and legal features of the digital currency, the degree of its impact on the monetary policy, the financial stability of the country’s economy and so on. In the process of forming the appropriate legal field and defining the conceptual apparatus in the sphere of emission and circulation of the CBDC, the peculiarities of the use of the latter in economic transactions and the specific functions not inherent in ordinary means of payment should be taken. СBDC initiatives will help: 1) progressively narrow the banking system at the level of the Central Banks (such as the Chicago Plan) by allowing individuals and businesses to deposit directly into the accounts of the Central Banks; 2) increasing confidence of economic entities and individuals in the financial system; 3) strengthening the financial stability of the economy (both domestically and globally). Granting business entities or individuals the right to store digital money directly with the Central Bank can give rise to two main directions of influence on monetary policy: first, to strengthen its transmission mechanism; secondly, lead to banks being disrupted. This may lead to some legal issues regarding (1) the NBU’s area of competence; (2) the constitutional foundations of the legal economic order (Article 5 of the ECU). In particular, it cannot be ruled out that centralization of the production, servicing, and management of the СBDC turnover may violate the principles of competition in business activities, prevent abuse of monopoly position in the market, etc. Keywords: monetary policy, central bank digital currency, financial stability, competence, legal framework, economic operations, issue.

scholarly journals Sustainable Approach to the Normalization Process of the UK’s Monetary Policy

2020 ◽  
Vol 12 (21) ◽  
pp. 9229
Author(s):  
Aleksandra Nocoń
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Global Financial Crisis ◽  
Synthesis Method ◽  
Balance Sheet ◽  
Central Banks ◽  
Short Term ◽  
Effect Analysis ◽  
Short Term Prediction ◽  
Normalization Process

It has been more than a decade since central banks, in the face of the global financial crisis, implemented a set of unconventional initiatives that included a rapid and significant decrease in their main interest rates and an unprecedented balance sheet policy. Thus far, they still have not returned their monetary policy to the pre-crisis framework and have not implemented a normalization process. Currently, a trend of using econometric models in monetary policy for forecasting purposes has been observed. Among these models, Bayesian vector autoregression models (BVAR models) are increasingly being used by central banks. The main aim of this study was to conduct an empirical verification of the BVAR model’s usage for short-term prediction which could then be used for a sustainable (ordered) normalization process for the UK’s monetary policy. This study verifies a research hypothesis which states that the BVAR model might be a useful tool in the Bank of England’s decision-making process regarding the normalization of its monetary policy. Additionally, the cause and effect analysis, observation method, document analysis method, and synthesis method were also considered. The conducted research indicates that a large BVAR model has a significant predictive value for short-term forecasting.

Digital Money, Liquidity, and Monetary Policy (originally published in July 1997)

First Monday ◽  
2005 ◽  
Author(s):  
Aleksander Berentsen
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Money Supply ◽  
Banking System ◽  
Central Banks ◽  
Electronic Payment ◽  
Regulatory Policies ◽  
Digital Money ◽  
Payment Mechanisms ◽  
Retail Payments

The term digital money refers to various proposed electronic payment mechanisms designed for use by consumers to make retail payments. Digital money products have the potential to replace central bank currency, thereby affecting the money supply. This paper studies the effect of replacing central bank currency on the narrowly defined stock of money under various assumptions regarding regulatory policies and monetary operations of central banks and the reaction of the banking system.

The czech experience with inflation targeting in transition

2000 ◽  
Vol 9 (3) ◽  
Author(s):  
Kateřina Šmídková ◽  
Miroslav Hrnčíř
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Inflation Targeting ◽  
Central Banks ◽  
Communication Strategy ◽  
The Other ◽  
Short Term ◽  
Countries In Transition ◽  
The One

This paper argues that inflation targeting is a strategy that can be under certain conditions adopted by central banks in countries in transition even though their typical goal is to disinflate instead of stabilising low inflation. On the one hand, according to the Czech experience, inflation targeting offers several benefits, such as increasing control over expectations and short-term flexibility of monetary strategy, that are attractive for economy in transition. On the other hand, constraints imposed by period of transition as well as by openness of economy are present no matter which monetary strategy is chosen by the central bank. Implied costs should not be attributed to a particular monetary strategy. Inflation targeting has made various factors constraining monetary policy more visible and, as a result, requirements on the quality of decisions as well as on communication strategy have increased.

Ultra-loose monetary policy will soon run its course

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Financial Markets ◽  
Interest Rates ◽  
Mutual Funds ◽  
Investor Sentiment ◽  
Central Banks ◽  
Target Range ◽  
Content Type ◽  
Equity Mutual Funds

Significance Expectations that the Fed will refrain from hiking its benchmark rates from its target range of 0.25-0.5% and that the Japanese central bank will provide further stimulus are suppressing volatility in financial markets and fuelling demand for risk assets. However, evidence that "overburdened" monetary policy is losing its efficacy triggered a sell-off in bonds and equities on September 9, increasing the scope for sharper price falls as investors worry that central banks have run out of ammunition. Impacts Services expanded in August at their slowest pace since 2010, making it less likely that the Fed will raise interest rates this month. EM bond and equity mutual funds have enjoyed a surge in inflows since the Brexit vote as yield-hungry investors pour money into risk assets Oil, a key determinant of investor sentiment, will stay below 50 dollars/barrel unless major producers agree measures to stabilise prices.

scholarly journals ROMANIAN INTERBANK INTEREST RATES AND CENTRAL BANK’S MONETARY POLICY

2019 ◽  
Vol 66 (4) ◽  
pp. 487-506
Author(s):  
Giovanni Verga ◽  
Nicoleta Vasilcovschi
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Interest Rates ◽  
Central Banks ◽  
The European Union ◽  
European System ◽  
National Bank ◽  
Lending Rates ◽  
Main Determinants

Interbank rates are affected by the monetary policy of a country and represent a link to other financial and credit markets. In 2007, Romania became a member of the European Union and its central bank, the National Bank of Romania (NBR), joined the European System of Central Banks (ESCB) but not the Eurosystem. This paper analyses the role of the central bank and the use of its instruments concerning interbank rates. The research evaluates the influence of the Romanian Central Bank on interbank rates and shows that the policy rate and bank liquidity are among the main determinants of interbank rate movements. It is also presented that the NBR’s deposit and lending rates can limit the free movements of the interbank rate of interest. This research confirms that interbank interest rates influence bank rates strongly. The methodology used in this research includes cointegration, dynamic econometric measurement and analyses with Granger causality. Our research uses mainly ROBID and ROBOR of different maturities, showing that the influence of the Romanian Central Bank (NBR) on the interbank rate is strong, while the influence of the ECB and Fed is weak.

scholarly journals Short-term deviations from monetary policy commitment in a monetary union: the degrees of freedom of an independent central bank

2016 ◽  
Author(s):  
Muriel Dal-Pont ◽  
Dominique Torre ◽  
Elise Tosi
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Monetary Union ◽  
Degrees Of Freedom ◽  
Real Income ◽  
Central Banks ◽  
Political Authority ◽  
Short Term ◽  
Distributed Information ◽  
Transmission Channels

The paper presents a model analyzing the degrees of freedom of an independent but committed Central Bank within a monetary union. In the model, interactions between Agents, Supranational Political Authorities and the Central Bank of the Union determine the current nominal and real outcomes. Imperfectly distributed information on shocks affecting supply, transmission channels and short-term expectations create opportunities for a Central Bank to deviate from its announced objective. This opportunity to deviate especially applies to Central Banks free from any kind of inflationary bias and committed to a strictly nominal target. Under certain conditions we show that nominal deviations from stated targets are not observable either by Agents or the Supranational Political Authority that periodically selects the membership of the Council of Monetary Policy of the Bank. Those deviations increase the variance of nominal values but dampen fluctuations of real income. Our results confirm, within a monetary union, the position defended by Cukierman and Metzler concerning the efficiency of a Central Bank’s ambiguous behaviour.

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.

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