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Implementing Monetary Policy

Author

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  • William A Allen

Abstract

The purpose of the paper is to discuss how monetary policy decisions made by the board or monetary policy committee of a central bank can be implemented. It distinguishes between the polar extremes of direct and indirect methods of implementation, and explains why indirect methods are generally preferred. It describes the circumstances in which various elements of a central bank’s balance sheet can grow very quickly, threatening to cause the growth rate of central bank money to rise to levels inconsistent with the objectives of monetary policy, and discusses what offsetting measures the central bank can take to contain the growth of central bank money. It describes in detail how open market operations can be conducted, and discusses techniques of intervention in foreign exchange markets. Finally, it reviews the usefulness of direct controls of instruments of monetary policy, and discusses the conditions in which such controls might be needed and how they can best be designed.

Suggested Citation

  • William A Allen, 2004. "Implementing Monetary Policy," Lectures, Centre for Central Banking Studies, Bank of England, number 4.
  • Handle: RePEc:ccb:lectur:4
    as

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    File URL: http://www.bankofengland.co.uk/education/ccbs/ls/pdf/lshb04.pdf
    File Function: English version
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    References listed on IDEAS

    as
    1. Peter Stella, 1997. "Do Central Banks Need Capital?," IMF Working Papers 97/83, International Monetary Fund.
    2. William Poole, 1969. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Special Studies Papers 2, Board of Governors of the Federal Reserve System (U.S.).
    3. Hamilton, James D, 1996. "The Daily Market for Federal Funds," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 26-56, February.
    4. de Bondt, Gabe, 2002. "Retail bank interest rate pass-through: new evidence at the euro area level," Working Paper Series 0136, European Central Bank.
    5. Baltensperger, Ernst, 1980. "Alternative approaches to the theory of the banking firm," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 1-37, January.
    6. Glenn Hoggarth, 1996. "Introduction to Monetary Policy," Handbooks, Centre for Central Banking Studies, Bank of England, number 1.
    7. Di Giorgio, Giorgio, 1999. "Financial development and reserve requirements," Journal of Banking & Finance, Elsevier, vol. 23(7), pages 1031-1041, July.
    8. Atish R. Ghosh & Anne-Marie Gulde & Holger C. Wolf, 2000. "Currency boards: More than a quick fix?," Economic Policy, CEPR;CES;MSH, vol. 15(31), pages 269-335, October.
    9. William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, Oxford University Press, vol. 84(2), pages 197-216.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777, April.
    2. Guender, Alfred V. & Rimer, Oyvinn, 2008. "The implementation of monetary policy in New Zealand: What factors affect the 90-day bank bill rate?," The North American Journal of Economics and Finance, Elsevier, vol. 19(2), pages 215-234, August.

    More about this item

    Keywords

    Monetary Policy;

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