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Open market operations: beyond the new consensus

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  • Toporowski , Jan

    ()
    (SOAS, University of London)

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    Abstract

    The emergence of the New Consensus in monetary policy has been followed by a renewal of interest in central banks’ operating procedures, and specifically in the role of open market operations. There is a general view that overnight interest rates are most effectively controlled by standing or discount window facilities, rather than open market operations, and this view will probably now extend also to lender-of-last-resort intervention. The paper argues that this reduced role for open market operations is only in the context of controlling overnight rates of interest. In spite of the emphasis on control of overnight interest rates, medium and long-term interest rates remain the crucial instruments in the monetary transmission mechanism. Longer-term interest rates are susceptible to influence by open market operations, and their importance grows with financial development.

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    Bibliographic Info

    Paper provided by Bank of Finland in its series Research Discussion Papers with number 14/2006.

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    Length: 38 pages
    Date of creation: 21 Jun 2006
    Date of revision:
    Handle: RePEc:hhs:bofrdp:2006_014

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    Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
    Web page: http://www.suomenpankki.fi/en/
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    Keywords: central banks; monetary policy; open market operations;

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    1. Välimäki, Tuomas, 2003. "Central bank tenders: three essays on money market liquidity auctions," Scientific Monographs E:26/2003, Bank of Finland.
    2. Goodhart, Charles & Dai, Lu, 2003. "Intervention to Save Hong Kong: The Authorities' Counter-Speculation in Financial Markets," OUP Catalogue, Oxford University Press, number 9780199261109.
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