Comparing monetary policy operating procedures across the United States, Japan and the euro area

In this volume, the BIS is publishing two papers examining in detail monetary policy operating procedures in the Unites States, Japan and the euro area. These two papers were originally presented at a conference hosted by the European Central Bank entitled "The Operational Framework of the Eurosystem and Financial Markets" on 5-6 May 2000. They have been updated in order to take into account the main changes in the implementation frameworks occurring since then. While an extensive academic literature exists on monetary policy objectives, strategy and tactics, comparatively little attention has been given to the "nuts and bolts" of policy implementation. This subject has remained the preserve of a relatively small group of cognoscenti, mostly limited to central bankers and some market participants. Likewise, there is a great dearth of comparative material. In many ways, this is regrettable. For, understanding how day-to-day monetary policy is implemented can cast light on a number of important economic questions, not least on the source of central banks' power to set interest rates, and the peculiar features of the market for central bank reserves, from which that power arises. The two papers in this volume help to fill this gap. They can be seen as updating the material contained in a previous BIS volume, prepared at the time when the euro had not yet been established. In the first paper, Borio provides a general conceptual framework to classify and understand monetary policy operations. He then uses it to highlight similarities and differences between the set ups in the three currency areas. The implications of the various choices made and the possible factors underlying them are analysed against the background of the evolution of the systems. In the second paper, Blenck, Hasko, Hilton and Masaki delve into the subject further, making an exhaustive comparison of the characteristics of the three frameworks considered. This volume could be of interest to three types of audiences. Central bankers will find in it the most authoritative description of operating procedures in the three main currency areas. They could use the information as a possible benchmark for evaluating the features of their own systems. Market participants could discover valuable information to read more accurately the day-to-day behaviour of the central banks concerned. Finally, the curiosity of academics may be whetted by the attempt to bridge the gap between their own traditional reference framework and the perspective of those who are actually in charge of implementing policy. A common language is a first necessary step towards a common understanding.